Fitch Affirms Irish Covered Bonds on Criteria Amendments

Thu Apr 3, 2014 11:08am EDT

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(The following statement was released by the rating agency) LONDON/FRANKFURT, April 03 (Fitch) Fitch Ratings has affirmed the ratings of two Irish mortgage programmes and one public sector programme with Negative Outlook. These rating actions follow the implementation of the agency's recently revised Covered Bonds Rating Criteria on programmes issued by the respective banks. The rating actions take into account the relevant Negative Outlooks on banks' Issuer Default Ratings (IDR) announced by Fitch on 26 March 2014 (see 'Fitch Revises Outlooks on 18 EU Commercial Banks to Negative on Weakening Support'). As part of its updated covered bonds analysis, the agency has assigned IDR uplift to each programme, where applicable. KEY RATING DRIVERS AIB Mortgage Bank's (AIBMB) mortgage covered securities (MCS) are affirmed at 'A'/Negative, based on the IDR of its parent Allied Irish Banks plc (AIB; 'BBB'/Negative). The rating also reflects an unchanged D-Cap of '1' (high discontinuity risk), and the overcollateralisation (OC) taken into account by the agency, which provides more protection than the breakeven OC for the rating. EBS Mortgage Finance's (EBSMF) MCS are affirmed at 'A'/Negative based on the IDR of its parent AIB. The rating also reflects an unchanged D-Cap of '1' (high discontinuity risk) and the OC taken into account by the agency, which provides more protection than the breakeven OC for the rating. Depfa ACS Bank's (Depfa) asset covered securities (ACS) are affirmed at 'A'/Negative based on Depfa's IDR of 'BBB+/Negative, an unchanged D-Cap of '3' (moderate risk) and the publicly committed OC of 5% that Fitch gives credit to in its analysis being equal to the breakeven OC for the rating. In addition, Fitch has assigned an IDR uplift of '1' to AIBMB and EBSMF programmes and an uplift of '0' to Depfa ACS' programme. The ratings and Negative Outlook on all three programmes reflect that a potential downgrade of their respective banks' IDRs is unlikely to be compensated by the IDR uplift. The Negative Outlooks on AIBMB and EBSMF MCS also reflect the negative outlook on the Irish mortgage sector assets (see '2014 Outlook: European Structured Finance', dated 4 December 2013). The IDR uplift expresses Fitch's judgement of the degree of protection in the event of a bank's resolution that would be available to prevent the source of covered bonds payments switching from the issuer to the cover pool. It is derived from the following factors: Fitch's opinion of the relative ease and motivations for resolution methods other than liquidation, the importance of covered bonds to the financial markets in a given jurisdiction and the extent of buffer offered by senior unsecured debt. Fitch's view on the use of resolution methods other than liquidation contributes to the IDR uplift assigned to the programmes where AIB is the ultimate parent based on it being one of two pillar banks in Ireland and its large size within the Irish market. RATING SENSITIVITIES AIB Mortgage Bank (AIBMB): The 'A' rating of the MCS is vulnerable to downgrade if any of the following occurs (i) AIB's IDR is downgraded by two notches to 'BB+' or lower; (ii) the level of OC that Fitch gives credit to in its analysis decreases below Fitch's 'A' breakeven OC of 56%. EBS Mortgage Finance (EBSMF): The 'A' rating of the MCS is vulnerable to downgrade if any of the following occurs (i) AIB's IDR is downgraded by two notches to 'BB+' or lower; (ii) the level of OC that Fitch gives credit to in its analysis decreases below Fitch's 'A' breakeven OC of 61%. Depfa ACS Bank (Depfa): The 'A' rating of the ACS is vulnerable to downgrade if any of the following occurs (i) Depfa's IDR is downgraded by one notch to 'BBB' or lower; (ii) the level of OC that Fitch gives credit to in its analysis decreases below Fitch's 'A' breakeven OC of 5%. Contact: Primary Analysts Stephen Kemmy (AIBMB, EBSMF) Director +44 20 3530 1474 Fitch Ratings Limited 30 North Colonnade London E14 5GN Oliver Issl (Depfa) Associate Director +49 69 768076 122 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analysts Kevin Vanistendael (AIBMB, EBSMF) Analyst +44 20 3530 1564 Kai-Uwe Richter, CFA, FRM (Depfa) Associate Director +69 768076 131 Committee Chairperson Carmen Munoz Senior Director +34 93 323 8408 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, Covered Bonds Rating Criteria, dated 10 March 2014; Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum and Counterparty Criteria for Structured Finance and Covered Bonds, both dated 13 May 2014; Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds, dated 23 January 2014; EMEA RMBS Master Rating Criteria, dated 6 June 2013; EMEA Criteria Addendum - Ireland, dated 31 July 2013; Covered Bonds Rating Criteria - Mortgage Liquidity and Refinancing Stress Addendum, dated 4 February 2014, Asset Analysis Criteria for Covered Bonds of European Public Entities dated 30 January 2013, Covered Bonds Rating Criteria - Public Sector Liquidity and Refinance Stress Addendum dated 07 February 2014, all available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds here EMEA RMBS Master Rating Criteria here EMEA Criteria Addendum – Ireland here Asset Analysis Criteria for Covered Bonds of European Public Entities here Covered Bonds Rating Criteria – Public Sector Liquidity and Refinancing Stress Addendum here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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