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

DBRS, Inc. (DBRS) has today removed from Under Review with Negative Implications rating of the outstanding series issued under the Bank of Ireland Mortgage Bank Covered Securities Programme and confirmed the rating of ‘A’ (low). The rating action follows the confirmation of the ratings on the Republic of Ireland long-term foreign and local currency debt at ‘A’ (low) with Negative trend, the amendment for the annual update to the programme prospectus date 17 August 2012, as well as the following analytical considerations:

• Incorporation of a sovereign related stress component in our stress scenario due to the current rating of the Republic of Ireland.
• The senior unsecured debt rating 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 Legal and Structuring Framework Assessment of ‘Strong’.
• Contractual Overcollateralisation (OC) level of 5% based on the prudent market value of the mortgage assets and substitution assets.
• BOIMB’s capabilities with respect to origination of cover pool assets and servicing of the cover pool.
• The credit quality of the collateral and the structural features of the Programme.

Following the DBRS confirmation of the ratings of the Republic of Ireland, DBRS conducted an updated review of the cover pool as of 30 July 2012. The analysis also included an updated cash flow simulation based on the updated cover pool, the outstanding liability balances and amount of substitution assets.

As of 30 July 2012 the Legislative OC level was 7%, above the 5% Contractual OC level and down from the 8% level at the initial DBRS rating on 24 April 2012. 15.2% of the outstanding value of the securities (€1.815 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 the asset and liability swaps which are included in the cover pool to hedge interest risk is the Bank of Ireland. Bank of Ireland’s non-guaranteed long-term rating is currently below the First Rating Threshold of ‘A’, the Bank of Ireland is currently posting collateral, which mitigates the counterparty risk in the short-term. Although Bank of Ireland is currently posting 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 reviews, 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 provided by the issuer and information related to the Programme from the issuer’s website. In addition, DBRS anlaysed the Residential Property Price Index published by the Irish Central Statistics Office (CSO). DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodologies applicable is Rating European Covered Bonds, Global Methodology for Rating Banks & Banking Organisations, Master European RMBS Methodology and Jurisdictional Agenda, Legal Criteria for European Structured Finance Transactions, Operational Risk Assessment for European RMBS Servicers, Swap Criteria for European Structured Finance Transactions, Unified Interest Rate Model for European Securitisations and the commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” which can be found on www.dbrs.com.

For additional information on this rating, please click the link.

Lead Analyst: Keith Gorman

Rating Committee Chair: Quincy Tang

Initial Rating Date: 18 April 2012

Most Recent Rating Update: 25 May 2012