Ulster Bank to issue bonds backed by mortgages

Bank to borrow €1.3bn on performing home loans for first time since property boom peak

Ardmore is issuing residential mortgage-backed securities  tied to “performing” home loans, where the borrowers are making repayments on time.  Photograph: Rui Vieira/PA

Ardmore is issuing residential mortgage-backed securities tied to “performing” home loans, where the borrowers are making repayments on time. Photograph: Rui Vieira/PA

 

Ulster Bank is borrowing €1.3 billion by issuing bonds backed by mortgages in its first such move in almost 11 years.

The bank is issuing a series of bonds backed by home loans through a vehicle called Ardmore Securities No 1 Designated Activity Company.

Ulster intends raising €1.3 billion from the move, which it will use to boost its lending in the Republic.

Ardmore is issuing residential mortgage-backed securities (RMBS) tied to “performing” home loans – that is, where the borrowers are making their repayments on time.

The last time that Ulster issued RMBSs was in mid 2007, the height of a property bubble that ended in a five-year recession. That was a tranche of mortgages pooled under the title Celtic 12.

Banks create RMBSs by pooling large numbers of individual mortgages into a bond. Investors, mostly other financial institutions, will buy the bonds and Ulster will repay them using the repayments that it receives from the homeowners.

The homeowners’ relationship with Ulster will not change and they will continue to deal with the bank as normal.

Assessment upgraded

This week, credits ratings agency Moody’s, which ranks organisations according to their ability to repay their debts, upgraded its assessment of Ulster Bank. The upgrade means Moody’s believe there is a low risk that Ulster will not repay liabilities such as customers’ deposits, bonds it issues and other cash it borrows.

Moody’s upgraded long-term banks deposits with Ulster to Baa1 from Baa2, meaning that it believes they are subject to only moderate risk. The agency upgraded its long-term issuer rating for Ulster to Baa2 from Baa3. The upgrades will help cut the lender’s own borrowing costs.

Irish and global banks frequently issued mortgage-backed bonds in the years before the economic crash of 2008 that helped send the Republic into recession.

Many bonds, particularly those issued in the US, included “subprime” mortgages where the homeowners were unable to repay their debts, rendering them almost worthless.

The investors who bought the bonds were unable to redeem their cash as a result. RMBSs featured in the book and film, The Big Short.

Irish banks did not include subprime mortgages in their RMBSs, but the recession left many borrowers unable to repay their home loans, which in turn hit the bonds’ value.-