The recent amendment to the Irish Asset Covered Securities (ACS) Act will have no rating impact on existing ACS programmes, according to Fitch, because the ratings agency’s covered bonds analysis focuses primarily on the cover pool assets, rather than the total mortgage assets of the ACS bank, which the change relates to.
The change to the ACS Act 2001 (Section 31(1)) Regulations 2012 was published on 17 April 2012. It relates to the cap on the ratio of the total principal amounts outstanding of the mortgage loans held by an ACS institution to the total prudent market value of the mortgaged property, which has been raised to 100%, from 80%.
While Fitch deems the change as weakening the ACS Act, it is not material to the analysis of the cover pool backing the ACS programmes and to the rating of the ACS, as the ratio is not calculated for the cover pool assets but for the total mortgage assets on the balance sheet of the ACS bank. In Fitch’s covered bonds analysis, it only relies on the cover pool assets as security for the covered bonds.
The ACS Act includes a more restrictive ratio for the assets in the cover pool, where the cap on the ratio of mortgage loans to the prudent market value of the underlying property is 75%. This ratio is more conservative than the amended one, not only because it is lower, but because it applies to all loans individually and not on a simple average basis.
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