DBRS Finalizes Ratings on Bank of Ireland Mortgage Bank Mortgage Covered Securities Programme

DBRS, Inc. (DBRS) has today assigned a final rating of A (low) to the outstanding series issued under the Bank of Ireland Mortgage €15,000,000,000 Mortgage Bank Covered Securities Programme. The final rating is assigned following the issuance of the Supplemental Prospectus dated 20 April 2012 and Amendments to the swap documents and Programme Agreements. All of the series issued under the Programme rank pari passu with each other and are rated A (low).

The ratings are based on the following factors:
1)The Mortgage Covered Securities 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.
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.
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).

DBRS expects the continued decrease in Irish home prices and increases in mortgage arrears to stress the cover pool and challenge BOIMB to maintain the current Legislative OC level of 8%, currently above the 5% Contractual OC level. As of 10 April 2012, 18.1% of the outstanding value of securities (€2.176 billion) consisted of substitution assets (deposits with the Bank of Ireland), 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 in scenarios where it was assumed that the issuer was in default.

DBRS collateral credit analysis is performed on a loan-level basis and includes a probability of default and loss given default assessment, an originator- and servicer-specific historical performance review, an Irish housing market and property price trend evaluation, and finally a cash flow simulation based on timing of issuer default, timing of mortgage defaults and recoveries, and interest rates.

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
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Swap Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European RMBS Servicers
• 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”.

For additional information on this rating, please refer to the linking document.

This credit rating has been issued outside the European Union (EU) and may be used for regulatory purposes by financial institutions in the EU.

Lead Analyst: Keith Gorman
Rating Committee Chair: Erin Stafford
Initial Rating Date: 18 April 2012
Most Recent Rating Update: 24 April 2012