DBRS Assigns Legal and Structuring Framework Assessment to Irish Covered Bonds Programmes

DBRS Ratings Limited (DBRS) has today assigned a Legal and Structuring Framework (LSF) Assessment to the BOIMB Mortgage Covered Securities Programme. The LSF Assessment is one of the four pillars of DBRS’s Rating European Covered Bonds methodology (the Methodology) and expresses DBRS’s view on the likelihood that payment obligations under the Covered Bonds (CBs) could be smoothly and efficiently transferred from a troubled bank to another bank, or the Cover Pool (CP), administered by a third party. Each LSF assessment is programme-specific and reflects the legal and structural features of each CB programme.

DBRS has assigned to BOIMB Mortgage Covered Securities Programme an LSF Assessment of “Adequate”.

The “Adequate” LSF Assessment associated with the programme reflect DBRS’s view of: (1) the satisfactory level of segregation provided by the ACS legal framework and the CB holders first priority right on the CP; (2) the composition of the CP, being 100% prime residential mortgage loans concentrated in an “A (low)” Domicile Sovereign, combined with a contractual provision to automatically extend each and all CB maturities by 12 months, even though the period may not be entirely available to attempt a firesale of the CP as the issuer is not immediately required to look for alternative refinancing arrangements; (3) the lack of any prescriptive structural mitigant or equivalent regulatory feature that might ensure the CP meeting interest and senior costs on the CB in the immediate aftermaths of an assumed default of the Reference Entity; (4) the role of the Central Bank of Ireland in the supervision of the Irish CB, combined with the high penetration of covered bonds as a funding tool for Irish banks in an “A (low)” Host Sovereign, an asset monitor appointed by and reporting directly to the regulator and the high involvement of the regulator in the contingency plans dedicated to covered bonds.

Contingency plans in Irish covered bonds are heavily reliant on the regulator’s proactivity, as the Central Bank may appoint a manager with a specific view to protect the interest of covered bonds holders beside the general depositors and markets interest, in case of an insolvency or potential insolvency of the institution, amongst other circumstances.

Everything else equal, the “Adequate” LSF assessment associated with the BOIMB Mortgage Covered Securities programme might be downgraded in any of the following cases: downgrade of the Irish sovereign to BBB (high) or below, the CP composition worsening.

For further information on BOIMB Mortgage Security Programme, please refer to the ratings report that can be found on www.dbrs.com.

The principal methodology applicable to Irish covered bonds is: “Rating European Covered Bonds” (December 2014). This can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com