Moody's Downgrades Unguaranteed Senior Debt Of Anglo Irish Bank By Three Notches To Baa3 From A3

Tyler Durden's picture

Ireland wakes up to some very ugly news this morning:

Dated subordinated debt downgraded to Caa1 from Ba1; bank deposits affirmed at A3/Prime-1 (on review for possible downgrade)

London, 27 September 2010 -- Moody's Investors Service has today downgraded the senior debt rating
of Anglo Irish Bank Corporation Limited ("Anglo Irish") by
three notches to Baa3/Prime-3 from A3/Prime-1, and
is maintaining it on review for possible downgrade. At the same
time, Moody's has downgraded the dated subordinated debt held
by Anglo Irish by six notches to Caa1 from Ba1 and has assigned a negative
outlook. The rating action on this class of debt concludes the
review that Moody's originally initiated on 8 December 2009,
and maintained on 1 March 2010 following the downgrade to Ba1.


The following ratings are unaffected by today's rating actions:

- the A3/Prime-1 ratings on the bank's long-
and short-term bank deposits, which remain on review for
possible downgrade;

- the backed-Aa2 rating (stable outlook) and the backed-Prime-1
rating on instruments and programmes guaranteed by the Irish government;

- the C rating on the bank's junior subordinated debt and
Tier 1 securities; and

- the E bank financial strength rating (BFSR), which maps
to a Caa1 rating on the long-term scale.






On 8 September 2010, the Irish government proposed a new plan for
Anglo Irish that stipulates splitting the bank into (1) a "Funding
Bank" (FB) to which all deposits will be transferred; and (2)
an "Asset Recovery Bank" (ARB), which will retain the
assets that are not transferred to NAMA, together with the remaining
liabilities, including all rated debt.


"Moody's expects a continued asset quality deterioration in
the loan book of Anglo Irish that will require further government support
for the bank's liabilities," says Ross Abercromby,
Vice President and lead analyst for Anglo Irish at Moody's.
The rating agency believes that the novation of the deposits into the
FB could increase the government's options to share the burden of
such support with other creditors that remain in the ARB. Without
an explicit government guarantee for senior unsecured note holders,
Moody's believes that the ratings for these instruments need to
incorporate this greater marginal risk. While Moody's considers
the likelihood of the government not supporting this debt to be very small,
this risk has been reflected in the three-notch downgrade to Baa3
and will continue to be a focus of the review for possible downgrade.
Moody's expects to receive further clarity from (a) the Irish government's
upcoming announcement of further details of its plans for Anglo Irish
over the coming weeks, and (b) the European Commission's verdict
on the proposed restructuring. Until such clarification is forthcoming,
Moody's review for possible downgrade will continue. "In
the absence of explicit government guarantees, the senior unsecured
debt ratings could be further downgraded into sub-investment grade,"
says Mr. Abercromby.


Moody's expects the Irish government's most likely strategy
to be the pursuit of an orderly wind-down of the ARB over a longer-term
horizon; this would follow a likely further capital injection in
coordination with the Central Bank's requirements. In this
scenario, Moody's would expect senior debt to be supported.
However, the Baa3/P-3 ratings also incorporate a risk scenario
that could see senior note holders of the approximately EUR4.2
billion outstanding that is not covered by the Eligible Liabilities Guarantee
(ELG) to be asked to share some of that burden -- for example,
via a buyback at a value that is substantially below par. Moody's
notes that such a buyback could be seen as a distressed exchange.


"However, there is the potential for the senior debt ratings
to be upgraded if, following the reorganisation, effective
guarantees are put in place by the Irish government" says Mr.




Moody's is maintaining the review for possible downgrade on the
A3/Prime-1 bank deposit ratings of Anglo Irish. The proposed
split of the bank will result in the deposits being novated to the FB.
In Moody's view, it is highly likely that guarantee arrangements
will remain in place for these deposits. The current A3 rating
reflects the 100% state ownership and Moody's view that the
deposit base of the bank continues to benefit from a very high probability
of systemic support. The review process will therefore continue
to focus primarily on the potential support from the Irish government
and the final form of the bank.




Moody's notes that, in Ireland, as in most countries,
the authorities have so far not imposed losses on dated subordinated debt
outside of a liquidation scenario. However, Moody's believes
that the possibility of greater burden-sharing at Anglo Irish has
significantly increased the risk of impairments to these securities.
This is because of the following factors: (i) the continuing need
for further capital injections as the non-NAMA loan book deteriorates;
and (ii) as the ARB will be wound down, the capitalisation of the
entity is, in Moody's view, likely to be relatively
thin -- thereby increasing the likelihood that the dated subordinated
debt may be required to absorb losses. In addition, the maturity
structure of the dated subordinated debt is such that a large proportion
does not mature until 2017 when the vast bulk of the senior debt will
already have matured. In Moody's opinion, this increases
the likelihood that this class of debt may be required to absorb losses.
The negative outlook reflects that, if any losses were to be imposed
on the debt, then the rating could be adjusted downwards in line
with the projected loss.


Moody's aims to complete its review of the bank's deposit and senior debt
ratings following the clarification of any support mechanisms for ARB's
liabilities, even if some final uncertainty remains until the European
Commission has approved the bank's restructuring plan.


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Id fight Gandhi's picture

Ireland posted "surprise" negative GDP. I doubt they're growing enough to handle this.

Dismal Scientist's picture

Who's the winner ? The Bernanke put, aka USD or the singularity, aka the Euro ?

It was a trick question: the winner is Gold, of course...


virgilcaine's picture

not to be confused with Allied Irish Bank.

Id fight Gandhi's picture

Of course not.

But ashes ashes they all fall down...

Sudden Debt's picture

Last Friday, I've seen a documentary about the Irish banking and real estate markets... mind boggling! They'll never be able to recover ever again!


Ghost towns of newly build mansions that cost hundreds of millions of euro's that where never finished, hundreds of newly build hotels and resorts that are never finished, loans to common people that are just freaking nuts! Common people without collateral or a job who got a loan at a bank of 1 million euro because they had a "good" idea to start a bizz!

All I could say after watching was: O MY GOD!

butchee's picture

Sudden Debt

What would be the title of that documentary you watched?  thanks

TheGreatPonzi's picture

Who cares? Trichet will print some billions, and problem solved. If Trichet can't, Bernie will.

Ivanovich's picture

Yes, but it's all sterilized! 



saulysw's picture

3,2,1.... Buy Treasuries! (hint, hint)

BetTheHouse's picture

Horrible news.  Should be good for a 1 percent pop on the S&P.  Opposite day, bitchez!

Goldenballs's picture

What a game,your loosing 26-0 at half time,you print some money loan the National team and win 26-27.Only difference is,well what is the difference tell us something we don,t already know or already suspect.Gold United for the League and Cup Double.

Josephine29's picture

This situation just seems to go on and on. I did howver have a wry smile at this excerpt from noyayesmanseconomics blog.

"In a similar vein I notice that the chief of property lending at the Irish bad-bank NAMA said this last week.

“We’re really a property company, not a bad bank,”

Sadly no-one told the author of the article as just a few lines lower we get,

NAMA was set up to repair Irish banks’ impaired balance sheets and improve liquidity by removing the worst property loans."

I guess the Cheif was just getting reading for the Irish governments new campaign to combat media negativity.





doolittlegeorge's picture

it's called a "media business" isn't it?  and their tycoons are called "billionaires."  you bet the spin is in.

johngaltfla's picture

That's going to leave a mark.

poggi's picture

Given the ratings agencies' performance with MBS, who the hell cares about ratings?  Are we to rely upon them when downgrading but not upgrading?  The corporate credit unions taken over last week were bound by charter to invest member CU's funds in triple-A paper.  They did.  Rating agencies should be shuttered.  Accepting fees from issuers?  Give me a break.  Did Anglo Irish forget to make their payment to Moody?

doolittlegeorge's picture

Buffet when called before Congress stated flatly "i own Moody's because you have no choice but to pay once your downgraded."  Now I'm fairly free wheelin' with my words but i'm not sure i would have been THAT direct.  Phil Angelides had to remind him "you're talkin' the former Treasurer of California so tell me something I don't know."

Ivanovich's picture

Why isn't EUR/USD at 1.36 on this news yet?

Bringin It's picture

The rating agencies are the Fed'd assassins in the competitive money wars.

gwar5's picture

Moody's has more work to do out there with downgrades. They're two years behind.

Vampyroteuthis infernalis's picture

The ratings are a day late and a dollar short which is typical for the agencies. Inevitably, they will address the reality that Europe is broke.

doolittlegeorge's picture

Europe's not broke.  It could be "misguided" however.  In other words like the US "they could become broke."  Clearly all of us on both sides of the pond are going to be paying top dollar for our bread and oil for...well...ever i imagine.