Ireland

Bank of Ireland is poised to raise €1bn of secured funding in the private placement market, in what many bankers say is likely to have been a repo arrangement with a UK bank. The financing comes against a backdrop of improved investor perception of the Irish Republic itself, and though it is early days, it shows progress can be made when macro conditions stabilise.

A UK based covered bond investor spoke to The Cover about the sovereign crisis. He believes the primary market should still be able to function, though the group of issuers capable of doing a deal will be much smaller. Greece is beyond hope, but he says the rest of Europe can still be saved.

Core European investors are much more pessimistic than two months ago, according to Crédit Agricole’s latest sentiment index, which showed an even greater decline in issuer sentiment. Investors expect further deterioration in Spanish and Italian covered bonds, but at a slower rate than over the last two months.

High yields and certain structural attributes have attracted faster money buyers to Portuguese mortgage covered bonds. While traditional investors have left Obrigações Hipotecárias (OH), buyers with high minimum yield requirements have found OH’s structure sound and rates compelling.

The covered bonds of Portuguese and Irish banks are drawing ever closer to sub investment grade status, though they are likely safe for the summer. Moody’s on Tuesday cut Ireland from Baa3 to Ba1 and assigned a Timely Payment Indicator (TPI) of Very Improbable to all Portuguese mortgage backed covered bonds. Some banks are rated only by Moody’s, though should the sub investment rating Rubicon be crossed, analysts expect the ECB to alter its criteria for repo eligible collateral.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

The eurozone sovereign debt crisis has tested the covered bond product like never before. Katie Llanos-Small examines how covered bonds from the periphery have performed during the crisis, and asks what might happen if a eurozone sovereign were to default.

Amid growing concern over peripheral euro sovereigns, covered bond analysts are focusing on the exposure to the troubled periphery of public sector cover pools in core jurisdictions.

Distressed Portuguese and Irish issuers could have the option to postpone the repayment of maturing covered bonds, according to UniCredit analysis, due to ambiguous wording about failure to pay the final redemption amount.

The primary market has slowed to a standstill today, though transactions are in the pipeline and could be due this week — including some new names. In the secondary market, the peripheral sovereign sector has softened but the bid for peripheral covered bonds continues to look well placed.

Fitch yesterday (Tuesday) downgraded Bank of Ireland’s UK residential mortgage covered bond programme and cut Irish covered bonds issued by AIB Mortgage Bank and EBS Mortgage Finance.

Fitch today (Friday) cut Allied Irish Banks and Bank of Ireland from A- to BBB, on stable outlook, following a downgrade of the Irish sovereign yesterday.