DBRS Assigns Rating to Bank of Ireland Mortgage Bank Mortgage Covered Securities Programme Series 38

DBRS, Inc. (DBRS) has today assigned a rating of A (low) to the Series 38 Mortgage Covered Securities issued under the Bank of Ireland Mortgage €15,000,000,000 Mortgage Bank Covered Securities Programme (the Programme). The Series 38 is a €1 billion fixed rate security with a 3.125% coupon maturing in November 2015. In addition, DBRS discontinues the ratings on the Series 27 security which matured and was paid in full on 19 November 2012, as well as the Series 35 security which was paid in full also on 19 November 2012. As all securities issued under the Programme rank pari-passu with each other, DBRS maintains a rating of A (low) on all other outstanding series.

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).

Following the issuance of the Series 38 securities and repayment of the Series 27 and Series 35 securities, the total outstanding amount of securities under the Programme is €11.834 billion. The aggregate balance of mortgages in the cover pool is €14.452 billion while the total amount of substitution assets is €1.798 billion.

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 6%, currently above the 5% Contractual OC level. Legislative OC can be maintained through adding newly originated mortgages or terminating retained/on-balance sheet ACS bonds. As of 20 November 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 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.

Note:
All figures are in Euros unless otherwise noted.

The principal methodologies applicable are:
• Legal Criteria for European Structured Finance Transactions
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
•Operational Risk Assessment for European RMBS Servicers
• Rating European Covered Bonds
• 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 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.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Keith Gorman
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: 18 April 2012
Most Recent Rating Update: 17 August 2012