DBRS Confirms Bank of Ireland Mortgage Bank Mortgage Covered Securities rating at ‘A’ (low)

DBRS Ratings Limited (DBRS) has today confirmed the ‘A’ (low) rating of the 32 series of notes outstanding under the Bank of Ireland Mortgage Bank Mortgage Covered Securites programme, upon implementation of the updated Rating European Covered Bonds methodology published on 16 January 2013. In addition, DBRS discontinues the ratings on the Series 2 security which matured and was paid in full on 20 December 2012.

The ratings are based on the following factors:
1) The Mortgage Covered Securities are direct, unconditional and senior obligations of Bank of Ireland Mortgage Bank (BOIMB), a wholly owned subsidiary of the Governor & Company of the Bank of Ireland (Bank of Ireland), which is rated BBB (high) with a Negative trend by DBRS. DBRS does not currently have a public rating on BOIMB.
2) Irish Asset Covered Securities (ACS) Act 2001 (as amended), which provides, among other things, ACS holders statutory preference to the Cover Assets.
3) DBRS Legal and Structuring Framework Assessment of “Strong”.
4) Contractual Overcollateralisation (OC) level of 5% based on the prudent market value of the mortgage assets and substitution assets, which translates in a nominal OC of 37%.
5) BOIMB’s capabilities with respect to origination of cover pool assets and servicing of the cover pool.
6) The credit quality of the collateral and structural features of the Programme (Extendable Maturity, collateral eligibility criteria, and prudent market value of mortgages for asset coverage).

There are Eur 11.664 bln covered bonds outstanding under the programme.

The Legislative OC level as at 31 December 2012 is 7%, currently above the 5% Contractual OC level. As of 31 December 2012, 15.1% of the outstanding value of securities consisted of substitution assets (deposits with the Bank of Ireland), slightly above the 15% threshold for purposes of calculating the Legislative OC level.

The counterparty for asset and liability swaps which are included in the cover pool to hedge interest risk is Bank of Ireland. Bank of Ireland’s non-guaranteed long-term rating is currently below the First Rating Threshold of A, which mitigates the counterparty risk in the short-term. Although Bank of Ireland is currently posting collateral consistent with the DBRS criteria, there is concern regarding the ability of Bank of Ireland to find a guarantor or replacement in case of a downgrade below the Second Rating Threshold of BBB in which case the counterparty risk may not be mitigated. As such, DBRS did not give credit for the cash flows generated by the derivatives.

The sources of information used for this rating include a loan level collateral file of the cover pool, historical arrears and default data, and repossession data for properties disposed in 2011, all provided by the Issuer. In addition, DBRS anlaysed the Residential Property Price Index published by the Central Statistics Office (CSO). DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Note:
All figures are in Euros unless otherwise noted.

The principal methodologies applicable are:
• Rating European Covered Bonds
• Global Methodology for Rating Banks & Banking Organisations
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Swap Criteria for European Structured Finance Transactions
• Unified Interest Rate Model Methodology for European Securitisations

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The sources of information used for this rating include a data related to the cover pool provided by Bank of Ireland Mortgage Bank. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see linking document.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Vito Natale
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 18 April 2012
Most Recent Rating Update: 20 November 2012