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London, 19 January 2010 -- Moody's Investors Service has today downgraded the non-cumulative Tier 1 instruments issued directly and indirectly by Bank of Ireland to Caa1 (stable outlook) from B3 (negative outlook). The rating action follows the bank's announcement of January 19 that it will not pay the upcoming distribution on two non-cumulative perpetual preferred securities (see below for further details).
The bank's cumulative Tier 1 securities and junior subordinated debt were affirmed at B1 (negative outlook) and Ba3 (negative outlook) respectively. The other ratings of the bank including the D BFSR, the A1 long-term bank deposit and senior debt rating, the A2 dated subordinated debt rating, the Ba3 junior subordinated debt rating, and the Aa1-rated government guaranteed debt were all unaffected.
Bank of Ireland announced on January 19, 2010, that the European Commission has requested that the bank should not make payments on its Tier 1 and Upper Tier 2 capital instruments unless it has a legal obligation to do so. Bank of Ireland has been required to submit a restructuring plan due to the substantial State Aid that it has received over the past year, in the form of the EUR3.5 billion preference share injection into the bank by the Irish government. In addition the bank will also be a major participant in the National Asset Management Agency (NAMA), an asset management company that will acquire land and development loans, as well as related lending, from five Irish institutions. The restructuring plan is currently lodged with the European Commission.
As a result of this the bank will not pay the upcoming distributions on the USD800 million non-cumulative perpetual preferred securities issued by BOI Capital Funding (No. 2) and on the USD400 million non-cumulative perpetual preferred securities issued by BOI Capital Funding (No. 3). The non-payment of these distributions will trigger the "dividend stopper" on these securities and therefore the bank will also be unable to declare or pay distributions, for one calendar year, on its ordinary equity, the EUR3.5 billion of preference shares issued to the Irish government, and on "junior share capital" or "parity securities" which includes the Tier 1 securities issued out of BOI Capital Funding (No. 1) and BOI Capital Funding (No. 4), the preference stock issued out of the bank itself and the cumulative preferred securities issued through Bank of Ireland UK Holdings plc.
The downgrade of the non-cumulative instruments last year to B3 was based on an expected-loss approach and reflected Moody's assumption that the bank would likely omit coupons for at least a two-year period, in line with other European bank's that have benefited from substantial State Aid. The further downgrade by one notch to Caa1 incorporates i) the certainty achieved today about the coupon deferrals as well as ii) the remaining uncertainty about the bank's financial strength beyond the 2-year time horizon, which also adds uncertainty about future coupon payments. The outlook for the securities is stable reflecting Moody's conservative expected loss assumptions in terms of the likelihood and time horizon of missed coupons, as well as the lower sensitivity of these instruments to the bank's intrinsic financial strength.
The cumulative preferred securities (with non-cash settlement through ACSM), issued through Bank of Ireland UK Holdings plc, and the cumulative junior subordinated debt of the bank, remain rated at B1 and Ba3 respectively. The cumulative tier 1 securities have largely the same features as junior subordinated debt on a going concern basis, but rank with preferred securities in liquidation. Under a going concern assumption, the expected loss for investors in both the cumulative preferred securities and the junior subordinated debt should therefore be clearly lower than for the non-cumulative preference shares.
Moody's notes that the terms of the preference shares issued to the Irish government means that the holder of these securities (the National Pensions Reserve Fund Commission of Ireland) becomes entitled to be issued with ordinary stock of Bank of Ireland in lieu of the cash dividend that is expected now not to be paid. However Bank of Ireland's discussions with the Commission are ongoing and therefore it is not certain that this will be the final outcome.
CORRECTION OF BANK OF IRELAND PREFERENCE STOCK:
Moody's has also corrected the rating of the Bank of Ireland preference stock (ISIN: IE0000730808 and IE0000730790). These securities had been identified as cumulative tier 1 instruments instead of non-cumulative tier 1 instruments and therefore on 4 June 2009 should have been downgraded with non-cumulative preference stock from B1 to B3. Instead the rating of these securities was mistakenly affirmed at B1.
These securities have also been downgraded to Caa1 today, in line with the other non-cumulative preference stock of the bank.
RATINGS AFFECTED:
The following securities were downgraded to Caa1 (stable outlook)
Bank of Ireland preference stock GBP50 million (ISIN: IE0000730808)
Bank of Ireland preference stock EUR66 million and EUR 40million (ISIN:IE0000730790)
BOI Capital Funding (No. 1) preferred securities EUR600 million (ISIN: XS0213178295)
BOI Capital Funding (No. 2) preferred securities USD800 million (ISIN: US055967AA11)
BOI Capital Funding (No. 3) preferred securities USD400 million (ISIN: US05568AAA88)
BOI Capital Funding (No. 4) preferred securities GBP500 million (ISIN: XS0268599999)
The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology" (February 2007), "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007) and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" (November 2009), which can be found at OpenDNS in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
The last rating action on Bank of Ireland was on September 9, 2009 when the bank's junior subordinated debt was downgraded to Ba3 (negative outlook) from Baa3 (stable outlook).
Based in Dublin, Ireland, Bank of Ireland reported total assets of EUR 184.3 billion as of 30 September 2009.
The bank's cumulative Tier 1 securities and junior subordinated debt were affirmed at B1 (negative outlook) and Ba3 (negative outlook) respectively. The other ratings of the bank including the D BFSR, the A1 long-term bank deposit and senior debt rating, the A2 dated subordinated debt rating, the Ba3 junior subordinated debt rating, and the Aa1-rated government guaranteed debt were all unaffected.
Bank of Ireland announced on January 19, 2010, that the European Commission has requested that the bank should not make payments on its Tier 1 and Upper Tier 2 capital instruments unless it has a legal obligation to do so. Bank of Ireland has been required to submit a restructuring plan due to the substantial State Aid that it has received over the past year, in the form of the EUR3.5 billion preference share injection into the bank by the Irish government. In addition the bank will also be a major participant in the National Asset Management Agency (NAMA), an asset management company that will acquire land and development loans, as well as related lending, from five Irish institutions. The restructuring plan is currently lodged with the European Commission.
As a result of this the bank will not pay the upcoming distributions on the USD800 million non-cumulative perpetual preferred securities issued by BOI Capital Funding (No. 2) and on the USD400 million non-cumulative perpetual preferred securities issued by BOI Capital Funding (No. 3). The non-payment of these distributions will trigger the "dividend stopper" on these securities and therefore the bank will also be unable to declare or pay distributions, for one calendar year, on its ordinary equity, the EUR3.5 billion of preference shares issued to the Irish government, and on "junior share capital" or "parity securities" which includes the Tier 1 securities issued out of BOI Capital Funding (No. 1) and BOI Capital Funding (No. 4), the preference stock issued out of the bank itself and the cumulative preferred securities issued through Bank of Ireland UK Holdings plc.
The downgrade of the non-cumulative instruments last year to B3 was based on an expected-loss approach and reflected Moody's assumption that the bank would likely omit coupons for at least a two-year period, in line with other European bank's that have benefited from substantial State Aid. The further downgrade by one notch to Caa1 incorporates i) the certainty achieved today about the coupon deferrals as well as ii) the remaining uncertainty about the bank's financial strength beyond the 2-year time horizon, which also adds uncertainty about future coupon payments. The outlook for the securities is stable reflecting Moody's conservative expected loss assumptions in terms of the likelihood and time horizon of missed coupons, as well as the lower sensitivity of these instruments to the bank's intrinsic financial strength.
The cumulative preferred securities (with non-cash settlement through ACSM), issued through Bank of Ireland UK Holdings plc, and the cumulative junior subordinated debt of the bank, remain rated at B1 and Ba3 respectively. The cumulative tier 1 securities have largely the same features as junior subordinated debt on a going concern basis, but rank with preferred securities in liquidation. Under a going concern assumption, the expected loss for investors in both the cumulative preferred securities and the junior subordinated debt should therefore be clearly lower than for the non-cumulative preference shares.
Moody's notes that the terms of the preference shares issued to the Irish government means that the holder of these securities (the National Pensions Reserve Fund Commission of Ireland) becomes entitled to be issued with ordinary stock of Bank of Ireland in lieu of the cash dividend that is expected now not to be paid. However Bank of Ireland's discussions with the Commission are ongoing and therefore it is not certain that this will be the final outcome.
CORRECTION OF BANK OF IRELAND PREFERENCE STOCK:
Moody's has also corrected the rating of the Bank of Ireland preference stock (ISIN: IE0000730808 and IE0000730790). These securities had been identified as cumulative tier 1 instruments instead of non-cumulative tier 1 instruments and therefore on 4 June 2009 should have been downgraded with non-cumulative preference stock from B1 to B3. Instead the rating of these securities was mistakenly affirmed at B1.
These securities have also been downgraded to Caa1 today, in line with the other non-cumulative preference stock of the bank.
RATINGS AFFECTED:
The following securities were downgraded to Caa1 (stable outlook)
Bank of Ireland preference stock GBP50 million (ISIN: IE0000730808)
Bank of Ireland preference stock EUR66 million and EUR 40million (ISIN:IE0000730790)
BOI Capital Funding (No. 1) preferred securities EUR600 million (ISIN: XS0213178295)
BOI Capital Funding (No. 2) preferred securities USD800 million (ISIN: US055967AA11)
BOI Capital Funding (No. 3) preferred securities USD400 million (ISIN: US05568AAA88)
BOI Capital Funding (No. 4) preferred securities GBP500 million (ISIN: XS0268599999)
The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology" (February 2007), "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007) and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" (November 2009), which can be found at OpenDNS in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
The last rating action on Bank of Ireland was on September 9, 2009 when the bank's junior subordinated debt was downgraded to Ba3 (negative outlook) from Baa3 (stable outlook).
Based in Dublin, Ireland, Bank of Ireland reported total assets of EUR 184.3 billion as of 30 September 2009.
