Moody's cuts rating on EBS, BOI instruments

Ratings agency Moody's said today it has downgraded instruments of both EBS and Bank of Ireland.

The agency cuts its rating on the tier 1 instruments of EBS by one notch to C from Ca.

"This follows the announcement of an offer from EBS Building Society to buy back its dated subordinated and tier 1 debt for cash at substantial discounts to the par value," Moody's said. "Moody's would classify the exchange offer on the dated subordinated debt as a distressed exchange."

Moody's has rated the dated subordinated debt of the bank as Ca since December 20th 2010, and has a negative outlook on the bank.

The agency warned that if the take-up on the debt buyback offer is not viewed as high enough by the Government, there was the possibility that losses could still be imposed on those debtholders who do not participate.

"This is now possible as a result of the legislation introduced in December 2010 by the Irish Government that provides the ability to impose losses on subordinated liabilities, outside of bankruptcy," the agency said.

At the end of June, the EBS bought back bonds worth €250 million at a discount of more than 35 per cent. The bonds related to €125 million of debt issued by Green Island Capital Securities and €125 million issued by ChessCapital Securities.

Moody's also said it would downgrade the junior securities of Bank of Ireland, cutting the rating on dated subordinated debt to Ca from B2, downgrading junior subordinated debt and cumulative tier 1 instruments to Ca from B3 and reducing the rating on the bank's non-cumulative tier 1 instruments to Ca from Caa1.

"In addition the offer to exchange two Canadian dollar dated subordinated bonds for one-year government guaranteed senior debt at a substantial discount to the par value has been classed as a distressed exchange," Moody's said.

"The downgrade of the bank's junior securities reflects Moody's view that the bank may, as a result of the bank's still substantial capital requirement, continue to look to raise capital through further exchanges or buybacks on its more junior classes of debt. This is because as part of the revised capital requirements in Ireland the bank is required to raise €2.2 billion by the end of February - a previous exchange in December on other dated subordinated instruments raised approximately €700 million of this requirement."

Moody's said the Ca rating also reflected that any further exchange carried out by the bank "would also almost certainly" be classified as a distressed exchange.

"Previously the ratings had incorporated an assumption that, following the exchange of the majority of the dated subordinated debt in December, that further exchanges or buybacks were less likely," Moody's said.