RATINGS AGENCY MOODY’S has downgraded its rating of bonds in Anglo Irish Bank down two steps from AAA to AA2.
The agency said its action was due to concerns that the commercial assets banking the bonds may not be as liquid as first believed.
“Given the difficult environment for the refinancing of commercial assets,” it said, “Moody’s believes that the probability of timely payments on the covered bonds is unlikely, after issuer default.
“Moody’s has therefore lowered the TPI [Timely Payment Indicator] … from ‘probable’ to ‘improbable’,” it said, according to the Financial Times’ Alphaville blog.
Noting that it is rare for such covered bonds to have their ratings downgraded, the blog notes that Moody’s move to lower the TPI is telling – as covered bonds are the first to receive “rapid and full repayment” should its issuer default.
In Anglo’s case, with the bank having been nationalised last year, a bank default would likely be the result of a governmental one.
“When assessing any TPI,” the agency explained, “Moody’s takes into account the respective government rating. This is because under Moody’s rating method, it is assumed that the ability and willingness of the government and financial institutions to support covered bonds weakens as the credit strength of the sovereign declines.
“Following the downgrade of the Irish government, Moody’s has lowered its assumptions on the likelihood that the government and/or other financial institutions would support the covered bonds following a default of Anglo Irish.”
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