London, 20 November 2015 -- Moody's Investors Service has today upgraded to Aa1 from Aa2 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 was prompted by Moody's upgrade
of the Counterparty Risk Assessment (CR Assessment) for the underlying
institution supporting the covered bonds:
--- Allied Irish Banks, p.l.c.
(AIB; deposits Baa3 positive, adjusted baseline credit assessment
(BCA) ba3, Counterparty Risk Assessment Baa2(cr)) as the underlying
institution supporting the covered bonds issued by AIB Mortgage Bank p.l.c.;
and
--- EBS Ltd (EBS; deposits Baa3 positive,
adjusted baseline credit assessment (BCA) ba3, Counterparty Risk
Assessment Baa2(cr)) as the underlying institution supporting the covered
bonds issued by EBS Mortgage Finance.
For additional details, please see "Moody's upgrades Allied
Irish Banks' deposits and senior unsecured ratings to Baa3 and Ba1
respectively; outlook is positive", published on 20 November
2015.
(https://www.moodys.com/research/Moodys-upgrades-Allied-Irish-Banks-deposits-and-senior-unsecured-ratings--PR_339234)
The Timely Payment Indicators (TPIs) assigned to both of the transactions
are "Probable".
KEY RATING ASSUMPTIONS/FACTORS
Moody's determines covered bond ratings using a two-step process:
an expected loss analysis and a 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 CB anchor for the programmes is the CR Assessment plus one notch.
The CR Assessment reflects an issuer's ability to avoid defaulting on
certain senior bank operating obligations and contractual commitments,
including covered bonds. Moody's may use a CB anchor of the CR
Assessment plus one notch in the European Union or otherwise where an
operational resolution regime is particularly likely to ensure continuity
of covered bond payments.
For both the programmes, 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 cover pool assets' credit quality. Moody's derives
collateral risk from the collateral score.
--- AIB Mortgage Bank covered bonds
The cover pool losses for this programme are 17.3%,
with market risk of 13.7%, and collateral risk of
3.6%, and the collateral score is currently 5.4%.
The over-collateralisation (OC) in this cover pool is 72.9%
on a nominal basis and 53.8% on a Prudent Market Value (PMV)
basis. The minimum PMV OC level that is consistent with the Aa1
rating target is 11%, of which the issuer, provides
5% on a "committed" basis. These numbers show that Moody's
is relying on "uncommitted" OC in its expected loss analysis.
--- EBS Mortgage Finance covered bonds
The cover pool losses for this programme are 15.4%,
with market risk of 12.0%, and collateral risk of
3.4%, and the collateral score is currently 5.0%.
The OC in this cover pool is 87.2% on a nominal basis and
58.9% on a PMV basis. The minimum PMV OC level that
is consistent with the Aa1 rating target is 11%, of which
the issuer provides 5% on a "committed" basis. These numbers
show that Moody's is relying on "uncommitted" OC in its expected loss
analysis.
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. All numbers
in this section are based on the most recent Performance Overviews and
Moody's most recent modelling based on data, as of 30 June 2015.
The PMV OC numbers are based on the relevant issuer's investor reports
as 30 June 2015.
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.
Factors that would lead to an upgrade or downgrade of the rating:
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
it downgrades the covered bonds because of TPI framework constraints.
The TPIs for both programmes are "Probable". The TPI Leeways for
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 circumstances, such as (1) a country ceiling or sovereign
downgrade capping a covered bond rating or negatively affecting 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.
RATING METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Covered Bonds" published in August 2015. 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 Aa1
