A new DBRS rating for Bank of Ireland Mortgage Bank’s mortgage covered securities (MCS) was sought because investors were keen for the covered bonds to retain their investment grade status and thus European Central Bank repo eligibility, according to a funding official at the Irish bank.

Bank of Ireland HQ

DRBS last Wednesday assigned a rating of A (low) to the Irish MCS – the first European covered bond rating it has assigned outside Portugal – and Redmond O’Leary, head of securitisation at Bank of Ireland, told The Covered Bond Report that it sought the rating given that the programme’s existing rating is only one notch above sub-investment grade.

“The rating on our covered bonds from Moody’s was Baa3, the minimum investment grade rating,” O’Leary told The Covered Bond Report. “Having spoken to investors over time, it’s of critical importance to maintain an investment grade rating, so it was prudent to secure a second and higher rating.

“Related to that, investment grade is the threshold for ECB eligibility at their normal repo operations. Again, it’s of critical importance for investors that it’s eligible at ECB operations, be that for banks that have access to ECB operations or the repo market in general, where it will be more liquid. The other point to note is that the higher the rating, the lower the haircut.”

O’Leary said that Bank of Ireland had not discussed the choice of DBRS with investors before gaining the new rating, and that investors also varied in how they considered ratings.

“Some investors take the highest rating, others the lowest rating, and some investors rely solely on their own analysis and ignore the ratings,” he said. “However, maintenance of eligibility for ECB operations is important for all these types of investors.

“Obviously DBRS are stepping up in this market,” he added, “they’re expanding their covered bond analysis, and they have already been active in the Canadian market.”