Standard & Poor’s lowered the rating of UK covered bonds issued by Bank of Ireland from A+ to A-, on negative outlook, yesterday (Monday) after reclassifying asset-liability mismatch risk in the programme as “high”.

The downgrade followed S&P’s assessment of the programme after a review of asset and cash flow information and discussions with the issuer about how it plans to manage the programme’s asset-liability mismatch risk (ALMM) and overcollateralisation levels.

The assessment led to change in the ALMM risk classification from “low” to “high”. This, combined with a programme categorisation of “2”, constrains the covered bond rating to four notches above the issuer rating. The previous categorisation of ALMM risk as “low” allowed for a maximum uplift of six notches above the issuer rating.

S&P said that current ALMM risk has increased, standing at 30.6%, given that there has been no recent issuance off the programme, and cashflows move forward and covered bond liabilities near maturity.

The weighted average maturity of outstanding covered bonds is 2.9 years (based on the extended maturity date) and 16.75 years for the residential mortgage assets in the cover pool.

The programme was removed from CreditWatch negative, but the outlook on the covered bonds is negative, reflecting the outlook on the issuer’s rating.

S&P said that if it lowered the issuer credit rating of Bank of Ireland the covered bond ratings would be subsequently lowered by an equivalent number of notches. S&P rates Bank of Ireland BB+.