London, 13 March 2014 -- Moody's Investors Service has today upgraded the ratings of all Irish
mortgage-backed covered bonds, following the rating agency's
decision to use the deposit rating of the issuers' respective parent
banks rather than the senior unsecured ratings (SURs) as the covered bond
anchor point.
The affected covered bond ratings are:
- Bank of Ireland Mortgage Bank Covered Bond Programme -
upgraded to A3 from Baa2 on review for downgrade
- AIB Mortgage Bank - covered bonds upgraded to Baa1 from
Baa2 on review for downgrade
- EBS Mortgage Finance Covered Bond Programme - upgraded
to Baa1 from Baa3 on review for downgrade
RATINGS RATIONALE
Today's rating actions follow Moody's decision to change the covered
bond anchor point for Irish mortgage-backed covered bonds from
the parent banks' senior unsecured ratings to the deposit ratings.
The deposit ratings are one notch above the senior unsecured ratings.
When determining the correct anchor point in covered bond analysis,
the rating agency takes into account the likelihood of an issuer ceasing
to make payments on, or otherwise support, the covered bonds.
Following the recent regulatory developments with regards to the positioning
of covered bonds in the capital structure of an issuer, Moody's
has concluded that for Irish banks, the deposit rating is a better
indication of a covered bond anchor event (i.e., the
likelihood that an issuer ceases to make payments on covered bonds),
than the senior unsecured rating.
The parent banks of the affected covered bond issuers are Bank of Ireland
(deposits Ba2 negative, standalone bank financial strength rating
(BFSR) E+/baseline credit assessment (BCA) b1) for Bank of Ireland
Mortgage Bank, Allied Irish Banks, p.l.c.
(deposits Ba3 stable, BFSR E+/BCA b2) for AIB Mortgage Bank
and EBS Ltd (deposits Ba3 stable, BFSR E+/BCA b2) for EBS Mortgage
Finance.
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 issuer
default.
The cover pool losses for each programme are an estimate of the losses
Moody's currently models if a CB anchor event occurs. Moody's
splits cover pool losses between market risk sand collateral risks.
Market risks measure losses stemming from refinancing risks and risks
related to interest-rate and currency mismatches (these losses
may also include certain legal risks). Collateral risks measure
losses resulting directly from cover pool assets' credit quality.
Moody's derives the collateral risk from the collateral score.
--- AIB Mortgage Bank
The cover pool losses are 18.6%, with market risk
of 11.9% and collateral risk of 6.7%.
The collateral score for this programme is currently 10.0%.
The OC in this cover pool is 92.3% on a nominal basis and
58% on a Prudent Market Value (PMV) basis. The minimum PMV
OC level that is consistent with the Baa1 rating target is 7%,
of which the issuer provides 5% in a "committed" form. These
numbers show that Moody's is relying on "uncommitted" (voluntary) OC in
its expected loss analysis.
--- EBS Mortgage Finance Covered Bond Programme
The cover pool losses are 17.6%, with market risk
of 10.9% and collateral risk of 6.7%.
The collateral score for this programme is currently 10.0%.
The OC in this cover pool is 83% on a nominal basis and 37%
on a Prudent Market Value (PMV) basis. The minimum PMV OC level
that is consistent with the Baa1 rating target is 6%, of
which the issuer provides 5% in a "committed" form. These
numbers show that Moody's is relying on "uncommitted" (voluntary) OC in
its expected loss analysis.
--- Bank of Ireland Mortgage Bank Covered Bond Programme
The cover pool losses are 21.3%, with market risk
of 12.1% and collateral risk of 9.2%.
The collateral score for this programme is currently 13.6%.
The OC in this cover pool is 74.2% on a nominal basis and
37% on a Prudent Market Value (PMV) basis. The minimum PMV
OC level that is consistent with the A3 rating target is 9%,
of which the issuer provides 5% in a "committed" form. These
numbers show that Moody's is relying on "uncommitted" (voluntary) 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 EMEA Covered Bonds
Monitoring Overview", published quarterly. All numbers in
this section are based on Moody's most recent modelling (based on data,
as of September 2013).
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI),
which indicates the likelihood that the issuer will make timely payments
to covered bondholders if the issuer defaults. The TPI framework
limits the covered bond rating to a certain number of notches above the
CB anchor. Moody's has assigned a TPI of "Probable"
to all Irish mortgage-backed covered bond programmes.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
The CB anchor is the main determinant of a covered bond rating's robustness.
The TPI Leeway measures the number of notches by which Moody's might lower
the CB anchor before the rating agency downgrades the covered bonds because
of TPI framework constraints.
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
lowering 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.
Volker Gulde
VP - Senior Credit Officer
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 all Irish mortgage-backed covered bonds
