London, 10 December 2014 -- Moody's Investors Service has today upgraded to A3 from Baa1 the ratings
of the covered bonds issued under the AIB Mortgage Bank and EBS Mortgage
Finance Covered Bond Programmes.
RATINGS RATIONALE
Today's rating action on the covered bonds were prompted by Moody's
upgrade of the deposit ratings:
--- Allied Irish Banks, p.l.c.
(AIB; deposits Ba2 negative, standalone bank financial strength
rating (BFSR) E+/adjusted baseline credit assessment (BCA) b1) as
the underlying institution supporting the covered bonds issued by AIB
Mortgage Bank p.l.c.; and
--- EBS Ltd (EBS; deposits Ba2 negative,
standalone BFSR E+/adjusted BCA b1) as the underlying institution
supporting the covered bonds issued by EBS Mortgage Finance.
For additional details, please see "Moody's upgrades
Allied Irish Banks debt and deposit ratings to Ba3 and Ba2 respectively",
published on 09 December 2014 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_313265).
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step process:
an expected loss analysis and a timely payment indicator (TPI) framework
analysis.
EXPECTED LOSS: Moody's uses its Covered Bond Model (COBOL) to determine
a rating based on the expected loss on the bond. COBOL determines
expected loss as (1) a function of the probability that the issuer will
cease making payments under the covered bonds (a CB anchor event),
and (2) the stressed losses on the cover pool assets following a CB anchor
event.
The cover pool losses are an estimate of the losses Moody's currently
models following a CB anchor event. Moody's splits cover pool losses
between market risk and collateral risk. Market risk measures losses
stemming from refinancing risk and risks related to interest-rate
and currency mismatches (these losses may also include certain legal risks).
Collateral risk measures losses resulting directly from the cover pool
assets' credit quality. Moody's derives collateral risk from the
collateral score.
The CB anchor for the AIB Mortgage Bank and EBS Mortgage Finance Covered
Bond Programmes are the deposit rating plus zero notches, given
that both the debt ratios are lower than 5%.
--- AIB Mortgage Bank covered bonds
The cover pool losses for this programme are 20.2%,
with market risk of 13.5%, and collateral risk of
6.7%, and the collateral score is currently 10.0%.
The over-collateralisation (OC) in this cover pool is 81.6%
on a nominal basis and 49.1% on a Prudent Market Value (PMV)
basis. The minimum PMV OC level that is consistent with the A3
rating target is 6.5% , of which the issuer,
provides 5.0% on a "committed" basis. These numbers
show that Moody's is relying on "uncommitted" (voluntary) OC in its expected
loss analysis.
All numbers in this section are based on the most recent Performance Overview
and Moody's most recent modeling (based on data as of 30 June 2014).
--- EBS Mortgage Finance covered bonds
The cover pool losses for this programme are 20.7%,
with market risk of 14.0%, and collateral risk of
6.7%, and the collateral score is currently 10.0%.
The OC in this cover pool is 110.5% on a nominal basis and
65.2% on a PMV basis. The minimum OC level that is
consistent with the A3 rating target is 6.5%, of which
the issuer provides 5.0% on a "committed" basis.
These numbers show that Moody's is relying on "uncommitted" (voluntary)
OC in its expected loss analysis.
All numbers in this section are based on the most recent Performance Overview
and Moody's most recent modeling (based on data as of 30 June 2014).
For further details on cover pool losses, collateral risk,
market risk, collateral score and TPI Leeway across covered bond
programmes rated by Moody's, please refer to "Moody's Global Covered
Bonds Monitoring Overview", published quarterly.
TPI FRAMEWORK: Moody's assigns a TPI, which measures the likelihood
of timely payments to covered bondholders following a CB anchor event.
The TPI framework limits the covered bond rating to a certain number of
notches above the CB anchor.
For the AIB Mortgage Bank and EBS Mortgage Finance Covered Bond Programmes,
Moody's has assigned TPIs of Probable.
Factors that would lead to an upgrade or downgrade of the ratings:
The CB anchor is the main determinant of a covered bond programme's rating
robustness. A change in the level of the CB anchor could lead to
an upgrade or downgrade of the covered bonds. The TPI Leeway measures
the number of notches by which Moody's might lower the CB anchor before
downgrading the covered bonds because of TPI framework constraints.
The TPIs for the AIB Mortgage Bank and EBS Mortgage Finance Covered Bond
Programmes are Probable and the TPI Leeways for the AIB Mortgage Bank
and EBS Mortgage Finance covered bond programmes are zero notches.
Thus, any reduction of the CB anchor may lead to a downgrade of
the covered bonds in both programmes.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances, such as (1) a sovereign downgrade
negatively affecting both the CB anchor and the TPI; (2) a multiple-notch
downgrade of the CB anchor; or (3) a material reduction of the value
of the cover pool.
Principal Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating Covered Bonds", published in March 2014. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Julie Ng
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades AIB Mortgage Bank and EBS Mortgage Finance Covered Bond Programmes to A3 from Baa1
