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Moody's places Tier 1 securities of Anglo Irish Bank on review for downgrade[/FONT]
[FONT=verdana,arial,helvetica]Action follows announcement that the bank will not pay coupons in the future and that it is considering an offer to buyback the securities [/FONT]
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London, 13 July 2009 -- Moody's Investors Service today placed on review for possible downgrade the Tier 1 securities of Anglo Irish Bank (with the exception of the non-cumulative preference shares with voting rights that are rated C). The bank's cumulative tier 1 securities are rated Caa1 and the bank's non-cumulative Tier 1 securities are rated Caa3, all with a negative outlook. [/FONT]
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On July 9 Anglo Irish Bank Ltd (Anglo, rated A3/P-1/E) announced that as a condition of approving the Irish Government's recapitalisation of the bank the European Commission (EC) requires that no further coupon payments be made on any of the Bank's Tier 1 Securities.
Moody's understands that there has not been any guidance from the EC on when payments will be able to resume, however we expect that this is unlikely to happen until the bank has returned to profitability. However, given the current situation of the bank and the difficult economic environment Moody's would not expect this to happen in the short -- to medium term, although we note that a substantial portion of its loan portfolio will be transferred to the National Asset Management Agency (NAMA) and this may speed up this process.
We also note that, depending on the value of the assets which will be transferred, this could also lead to a further capital requirement. We are also of the opinion that continuing government support is likely to be required to give the bank sufficient flexibility to restructure and establish a viable business model again. [/FONT]
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In addition the bank has announced that it is considering a buyback offer for the Tier 1 securities, as well as for one junior subordinated security and one dated subordinated security. This is still subject to regulatory and shareholder approvals. Given that the bank has, as detailed above, already announced that coupons will be omitted on both cumulative and non-cumulative Tier 1 securities, any offer to buyback these Tier 1 instruments is likely to be classed as a "distressed exchange" by Moody's. The securities are currently trading at a large discount to their par value and therefore Moody's expects that potential losses to investors who choose to accept the offer will be substantial. The review for possible downgrade will therefore focus on the likely losses for investors assuming the offer goes ahead. [/FONT]
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The current Caa1 and Caa3 ratings on the cumulative and non-cumulative Tier 1 securities are based on an expected loss approach that already assumed a high probability of the omission of coupons and high loss severity over a three-year period. However they do not incorporate the potential larger loss as a result of the potential buyback offer and the likelihood of being classed as a distressed exchange by Moody's. [/FONT]
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The dated subordinated and junior subordinated issues that are likely to be part of the buyback are unlikely to be classed as a "distressed exchange" by Moody's and therefore the ratings are affirmed at Baa1 and B3. [/FONT]
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PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES [/FONT]
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The last rating action on Anglo was on July 7, 2009 when the senior debt guaranteed by the Irish government was downgraded to Aa1 (negative outlook) from Aaa (review for possible downgrade).
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The detailed ratings and actions are listed below: [/FONT]
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Anglo Irish Bank Corporation Ltd: [/FONT]
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• Cumulative Tier 1 securities placed on review for possible downgrade. [/FONT]
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• Non-cumulative Tier 1 securities placed on review for possible downgrade. [/FONT]
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Anglo Irish Bank had total assets of EUR 88.5 billion at end-March 2009. The bank is headquartered in Dublin, Ireland. [/FONT]