* AIB and permanent tsb raised 1 bln euros of debt this week
* Permanent tsb says could follow AIB with an unsecured bond
* Sees further mortgage-backed bonds
By Owen Sanderson and Padraic Halpin
LONDON/DUBLIN, Nov 21 (IFR/Reuters) - Permanent tsb
re-opened the market in mortgage-backed securities this week
with the first public issue of bonds backed purely by
residential loans since a housing crash six years ago brought
the country close to financial collapse.
The sale, which raised 500 million euros for the state-owned
bank, marks another funding avenue for Irish lenders, slowly
recovering their access to public debt markets after imposing
losses on junior bondholders in 2011 to help finance the
"The RMBS (residential mortgage backed securities) market
has been opened up now by permanent tsb. It opens up another
funding vehicle for AIB and Bank of Ireland if they chose to go
down that road," said Fergal O'Leary of Glas Securities.
"Investors are getting more comfortable with Ireland. If
Irish banks wanted to issue more debt between now and year-end,
there certainly seems to be sufficient demand from investors."
Irish banks' access to debt markets has been steadily
improving as the country moves closer to exiting a 67.5 billion
euro EU/IMF bailout at the end of this year, the first euro zone
country to do so.
Before the crisis, 21 billion euros of Irish RMBS were
placed with investors between 2000 and 2007, according to
figures from Barclays, with 10 billion of these sales in 2006.
So far this year, Irish banks have raised 6 billion euros in
capital markets, including 1 billion this week from the
permanent tsb deal and an unsecured 3-year bond issued by Allied
Irish Bank (AIB), its first move beyond asset-backed
debt since the crisis.
Permanent tsb could follow with an unsecured issue in 2014.
"RMBS will be a very natural route for us to go down in
future, but after the AIB deal yesterday, senior is definitely a
real option too," said Declan Dolan of the bank's treasury team.
Investors have been attracted by the high yields on Irish
bank debt, with more than 300 investors placing 3.2 billion
euros of orders for AIB's 500 million euro issue, which was
priced at 235 basis points (bps) over mid-swaps, a bond pricing
mechanism, far higher than for banks outside of Europe's
Asia-focused Standard Chartered, for example, paid
65 bps over mid-swaps for a five-year senior bond last week.
Investors, nearly 60 percent of them from the UK and a third
from the euro zone, put in 1 billion euros of orders for the
permanent tsb deal.
Buying has continued in the secondary market, with the bonds
issued at 100 and shown bid at 100.2 on Thursday.
While AIB and Bank of Ireland returned to public debt
markets with cheaper, double-secured "covered bonds", permanent
tsb's ability to issue such debt is complicated while it awaits
approval from the European Commission for a restructuring plan.
Instead, the bank opted for the more expensive
Issuing a bond solely backed by residential mortgages does
have regulatory benefits, however, since a bank can simply walk
away from the structure without this being a default, leaving
bondholders to be paid back by the underlying mortgages.
The transaction, dubbed Fastnet 9, carried a coupon of 165
bps over three-month European interbank rates, while Bank of
Ireland's covered bond, priced at the beginning of November in a
similar maturity, was trading around 128 bps over mid-swaps.
Weighed down by a large stock of loss-making mortgages,
permanent tsb made sure to offer the cream of its portfolio.
"This is definitely a cherry-picked portfolio, but we have
plenty of assets left to support further issuance," said Dolan.
The home loans in Fastnet 9 had a loan to value ratio when
they were written in April 2007 of 61.5 percent, meaning that
the borrower had paid a deposit of nearly 40 percent.
Overall, the average loan to value ratio of permanent tsb's
residential mortgage book was 115 percent at the end of June.
For loans on buy-to-let properties, the LTV was 140 percent.
None of the mortgages backing the bond have been in arrears
of more than 30 days, nor have they had payment holidays,
restructurings or moratoriums for the previous two years.
By comparison, some 15 percent of permanent tsb's
residential mortgages are in arrears for more than 90 days.