Moody’s is reviewing for upgrade mortgage covered bonds issued by AIB Mortgage Bank and EBS Mortgage Finance – both members of the AIB group – after having upgraded the CRs of their parent entities, with the outcome of the process dependent upon overcollateralisation (OC) plans.

The rating agency last Monday (19 September) upgraded from Baa2 to Baa1 its Counterparty Risk (CR) assessments of Allied Irish Banks plc and EBS d.a.c. The actions followed an improvement in Moody’s Macro Profile of Ireland from Moderate+ to Strong.

“The main driver for the rating actions is the improvement in credit conditions in the banking system following the rapid and material deleveraging of the private sector, as well as stronger funding conditions as most banks have regained the ability to issue different debt instruments,” said Laurie Mayers, associate managing director at Moody’s.

“The rating actions also incorporate the strengthening of the banks’ credit fundamentals, especially the progress they have made in reducing non-performing assets, improving the quality of earnings and strengthening their capital metrics.”

Putting the covered bond programmes on review for upgrade today (Monday), Moody’s noted that the programmes have high levels of OC and that during its review it will consider whether OC will be maintained at a level consistent with a triple-A rating – the AIB and EBS programmes are rated Aa1.

According to Moody’s, the OC in AIB’s cover pool is 58.6% on a Prudent Market Value (PMV) basis, with 5.0% provided on a “committed” basis, while the minimum PMV OC level consistent with a Aaa rating for the programme is 17%, of which none needs to be provided on a committed basis. The OC in EBS’s cover pool is 47.4%, of which EBS Mortgage Finance provides 5.0% on a committed basis, while the minimum level consistent with a Aaa rating is 14.5%, of which none needs to be on a committed basis.

Bank of Ireland’s CR assessment was also upgraded, from Baa1 to A3, but Moody’s said that it is not reviewing the Aa1 rating of Bank of Ireland Mortgage Bank’s covered bond programme for upgrade as it does not expect OC to be maintained at a level consistent with a triple-A rating.

OC in Bank of Ireland Mortgage Bank’s cover pool is 61.9%, of which 5.0% is provided on a committed basis, according to Moody’s, while the minimum consistent with a Aaa rating would be 20.5%, of which the issuer need not provide any on a committed basis.