The covered bonds of AIB Mortgage Bank and EBS Mortgage Finance were upgraded to double-A by Fitch on Friday on the back of changes to the rating agency’s criteria, with the covered bonds of EBS benefitting from a smaller uplift than those of its fellow AIB subsidiary due to a lower level of committed OC.

The upgrades are the latest to come as a result of changes Fitch made to its covered bond rating criteria on 26 October.

On Friday afternoon, Fitch upgraded the mortgage covered bonds of AIB Mortgage Bank from A+ to AA+, on positive outlook, and those of EBS Mortgage Finance from A+ to AA, on stable outlook.

The positive outlook on AIB Mortgage Bank’s covered bonds reflects that on AIB’s BB+ IDR. Although EBS Mortgage Finance’s parent, EBS, is also a subsidiary of AIB, its covered bond rating is constrained by EBS’s publicly committed OC.

For AIB’s covered bond rating, Fitch relies upon publicly committed OC of 39.0%, which provides more protection than the breakeven OC of 29.0% for a AA+ rating. The breakeven OC corresponds to a AA- tested rating on a Probability of Default (PD) basis and a two-notch recovery uplift.

For EBS, Fitch relies on publicly committed OC of 32.0%, which provides more protection than the breakeven OC of 31.5% for a AA rating. This corresponds to a A+ tested rating on a PD basis and a two-notch recovery uplift.

The AA+ breakeven OC of AIB’s covered bonds is lower than the AA breakeven OC of EBS’s covered bonds mainly because of a lower credit loss, Fitch added.

The breakeven OC of each rating is lower than previously, reflecting stressed refinancing spread levels (RSL) for Irish cover assets that are now lower than Fitch’s former assumptions at the same rating scenario.

In a AA- scenario, Fitch’s RSL for pools of Irish owner-occupied residential mortgages is 379bp per year (previously 424bp per year).