DBRS Rates ISTC’s Forthcoming Perpetual Cumulative Subordinated Securities at BBB (low)

DBRS has assigned a BBB (low) rating to the forthcoming perpetual cumulative subordinated debt of International Securities Trading Corporation plc (ISTC). DBRS already rates ISTC’s senior debt at BBB and its subordinated debt at BBB (low), all with a Stable trend.

According to DBRS, the ratings reflect ISTC’s relatively low risk profile and predictable financial fundamentals. ISTC is a specialized lender focused on banks’ hybrid instruments and asset-backed securities (ABS) originated by banks. It is a non-regulated financial institution that adheres to self-imposed restrictions and policies very similar to those of regulated banks.

The ratings are underpinned by the fact that ISTC is prudently developing its short- to medium-term strategic goals of establishing a portfolio of approximately EUR3.5 billion to EUR5.0 billion, establishing a name with issuers and suppliers of funding, and generating a stable income stream. It has already established a good reputation for the provision of bank capital to the market and aims to be the first port of call for bank capital issuers and the partner of choice for investment banks over the next five years. ISTC anticipates that many of its activities will remain complementary to that of mainstream investment banks. Given its unregulated status and the fact that ISTC is within its first few years of operation, DBRS is committed to closely monitoring the Company’s adherence to the policies that underpin the assigned ratings.

DBRS’s ratings incorporate the view that ISTC now has access to a well-diversified funding base with 27 separate funding providers. Around 60% of outstanding debt is term financing (against a self-imposed limit of 55%). We expect ISTC’s funding base to be further strengthened in the short- to medium-term. ISTC’s appetite for market risk, specifically interest and currency risk, is limited. The respective limits are conservatively measured, allowing the Company’s management an efficient hedging of the inherent mismatch between assets and liabilities.

ISTC’s liquidity is safeguarded by a liquidity reserve that is determined by a sophisticated model. Capitalisation is robust in view of its perceived low credit and market risk. The cumulative effect of credit-risk deterioration and a sudden spread-widening for banks’ hybrid equity instruments calls for the minimum cash or cash equivalents required by ISTC as being the greater of either 5% liquidity or the amount dictated by the Company’s liquidity model. ISTC currently holds cash or cash equivalents representing 6.9% of total assets.

DBRS adds that it expects ISTC’s risk-return profile to change in the medium term as the Company continues to expand into related business areas, such as asset management, underwriting and advisory services. The rating agency believes that, going forward, ISTC will not assume risks that it cannot control. In addition, its choice of industry specialisation also suggests that downside risk is somewhat limited.

ISTC is based in Dublin, Ireland. The Company was formed by Tiarnan O Mahoney and a group of experienced bankers in May 2005 and has grown steadily since that date, now employing 20 professionals. At the half year to 15 March 2007, ISTC had a balance sheet of EUR1.9 billion, EUR170.8 million of shareholder’s equity and a total capital ratio of 10.7%.