DBRS Assigns AAA Rating to Bank of Ireland Mortgage Bank Mortgage Covered Securities Programme New Issuance

DBRS Ratings Limited (DBRS) assigned a rating of AAA to the Series 64 Mortgage Covered Securities (Series 64) issued under the Bank of Ireland Mortgage Bank (BOIMB or the Issuer) EUR 15,000,000,000 Mortgage Covered Securities Programme (the Programme). Series 64 is a EUR 25 million fixed-rate bond with a coupon of 1.5475% that will mature on 31 March 2043.

At the same time, DBRS confirmed its AAA ratings on the outstanding DBRS-rated BOIMB covered bonds (CB).

Following the issuance, there are 44 series of CB outstanding under the Programme, with a nominal amount of EUR 8.3 billion. Of these, DBRS currently rates 32 bonds publicly with an outstanding balance of EUR 8.0 billion.

The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of A (high), which is the Long Term Critical Obligations Rating of Bank of Ireland (BoI). BoI is the Reference Entity for the programme.
-- A Legal and Structuring Framework (LSF) assessment of “Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of A (low), which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-L of AA.
-- A two-notch uplift for high recovery prospects.
-- A level of overcollateralisation (OC) of 20.8% to which DBRS gives credit, which is the minimum observed OC level during the past 12 months adjusted by a scaling factor of 0.85.

The transaction was analysed with the DBRS European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, interest rate stresses and market value spreads to calculate liquidation values on the cover pool (CP).

Everything else being equal, a one-notch downgrade of the CBAP would lead to a one-notch downgrade of the LSF-L, resulting in a one-notch downgrade of the CB ratings. In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below A (low); (2) the LSF assessment associated with the programme was downgraded to “Average” or lower; (3) the quality of the CP and the level of OC were no longer sufficient to support a two-notch uplift for high recovery prospects; (4) the relative amortisation profile of the CB and CP moved adversely; or (5) volatility in the financial markets caused the currently estimated market value spreads to increase.

As at 31 March 2018, the aggregate balance of the mortgages in the CP was EUR 11.7 billion (including mortgages and substitution assets). The nominal amount of substitution assets was EUR 1.2 billion. These are held in a deposit account that is not contractualised, and the replacement trigger is not consistent with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology. Hence, DBRS gives 40% credit to these assets, leading to a total considered CP of EUR 11.0 billion, which results in a total OC of 33.1%.

As of March 2018, the CP included EUR 10.5 billion of first-lien residential mortgages, comprising 80,982 mortgage loans, with a weighted-average (WA) current unindexed loan-to-value ratio of 61.3%. The pool is 83 months seasoned and the reference rate of the underlying loans is primarily fixed (52.3%). Of the securities outstanding, 61.2% pay a fixed coupon. The interest rate mismatch in the Programme is partially hedged with BoI.

The DBRS-calculated WA life of the mortgage assets is roughly 13 years based on a 0% prepayment rate, which is longer than the 5.3 years of WA life of the CB, not accounting for any maturity extension. This risk is mitigated by the Extended Maturity Dates, which fall one year after the Maturity Dates, and by the OC in place.

All CP assets and CB are denominated in euros. As such, investors are not currently exposed to any foreign exchange risk.

DBRS has assessed the LSF related to the Programme as “Strong” in accordance with its rating methodology. For more information, please refer to DBRS’s commentaries “DBRS Assigns Legal and Structuring Framework Assessment to Irish Covered Bonds Programmes”, “Irish Covered Bonds Legal and Structuring Framework” and “DBRS Upgrades Ratings on Bank of Ireland Mortgage Bank Covered Bonds (ACS – Mortgages) to AA (high),” which are available at www.dbrs.com.

For further information on the Programme, please refer to the rating report at www.dbrs.com.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Covered Bonds”.

In DBRS’s opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, DBRS focused on the cash flow analysis. A review of the transaction legal documents was limited to the documentation pertaining to the issuance of Series 64. All the other documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor reports provided by the Issuer.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 29 March 2018, when DBRS assigned AAA ratings to the BOIMB Covered Bonds Series 62 and Series 63, discontinued its rating on Series 39 and confirmed its AAA ratings on BOIMB’s outstanding CB at that time.

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

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 18 April 2012

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Covered Bonds
-- Rating European Covered Bonds Addendum: Market Value Spreads
-- Global Methodology for Rating Banks and Banking Organisations
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating Sovereign Governments

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.