Moody’s upgraded AIB Mortgage Bank covered bonds by one notch to Baa2 yesterday (Tuesday) because of a substantial increase in OC, the same reason for an upgrade of Bank of Ireland ACS last week. The TPI was also similarly revised.

AIB headquarters, Ballsbridge, Dublin

The overcollateralisation in AIB’s Asset Covered Security (ACS) cover pool is 92.3% on a nominal basis and 58% on a Prudent Market Value (PMV) basis. The issuer provides 5% PMV OC on what Moody’s considers a committed basis. The minimum PMV OC level that is consistent with the Baa2 rating target is 24%, of which the issuer should provide 5% in a committed form.

Moody’s has revised the Timely Payment Indicator (TPI) from Very Improbable to Improbable for AIB’s ACS, as it did for Bank of Ireland Mortgage Bank’s covered bonds last Tuesday (12 November). This is because of signs of improvement in the Irish housing market, and also reflects Moody’s positive view of the PMV concept under Irish ACS law as a source of protection for covered bondholders.

According to Moody’s, Irish housing prices have stabilised and arrears on residential mortgage loans are about to peak.

“After seven years, the Irish housing recession is finally showing signs of bottoming out,” said the rating agency. “This situation is credit positive for Irish RMBS and covered bonds, as it puts a limit on loss severities and the ultimate level of total losses that Irish residential mortgage loans will experience.”