Bank of Ireland is set to raise up to €10 billion over the next four or five years by issuing "jumbo" bonds secured on Irish and British mortgages.
The bank said yesterday that it planned to launch the assetcovered securities programme in the second half of this year.
The first part of the programme is expected to raise €2 billion for the bank, which will use the money to help fund its expanding loan book.
The issue will be the first mortgage-backed bond to be engineered by an institution under new legislation introduced last year. Two banks based in the International Financial Services Centre, Depfa and West LB, have issued covered bonds under the legislation but these have been issued on pools of public credit rather than mortgage assets.
While the initial tranche of the Bank of Ireland issue will be backed by Irish mortgages, the bank expects to gradually introduce British mortgages into the programme.
It is expecting the bonds to be awarded a "triple-A" credit rating, making them easier to sell to a wider range of institutional investors at more attractive rates.
The bank will construct the bonds by transferring a block of mortgages into what is essentially a new credit institution within the Bank of Ireland Group's balance sheet.
In this sense, asset-covered securities differ from securitisations, which allow companies to access off-balance-sheet funding.
A bond issued by the bank's new credit institution will then be sold to investors, with Bank of Ireland hopeful of attracting buyers from areas previously untapped by its fundraising efforts.
Investors in asset-covered securities are typically central banks and pension funds.
The Japanese market, where investors tend only to accept AAA-rated products, is thought to be a particular target for Bank of Ireland Global Markets, which will be handling the programme.
Any penetration into Asia would be seen as a boon for the Bank of Ireland Group.
The bank's chief executive, Mr Michael Soden, said yesterday the programme could potentially help to broaden the group's shareholder base.
Describing the issue as "mould-breaking", Mr Soden said it would play an important role in the bank's fundraising strategy in years to come.
