It has mandated Citigroup, Danske Bank, Deutsche Bank, Nomura and Royal Bank of Scotland to handle the euro-denominated bond issue, which is expected to be rated investment grade Baa3 by Moody’s credit ratings agency and A (low) by DBRS credit ratings agency, subject to market conditions.
The bank has given no guidance on how much it plans to raise, although it is believed that will depend on market conditions.
Bank of Ireland issued its first covered bond since Oct 2010 last November when it raised €1bn through a three-year bond at a price of mid swaps plus 270 basis points. It raised a further €500m through a five-year covered bond in March at mid swaps plus 190 basis points.
The spread is likely to narrow for this issue. A covered bond is backed by cashflows from its mortgage book.
A spokesperson for the bank said the latest issue was part of normal fund-raising activity and there is no read through for a potential rights issue over the next few months.
Bank of Ireland is the most viable of the three domestic Irish banks and is on course to return to profitability in 2014. The Government owns 15% of its ordinary shares and a further €1.8bn in preference shares.
If these preference shares are not redeemed by next March then there is a 25% step up clause, which would see the Government’s share increase in value to €2.25bn.
The bank is believed to be looking at a number of options, including a rights issue, to raise the funds needed to redeem these preference shares.
Merrion Stockbroker’s senior credit analyst issued a research note last week which said that Bank of Ireland would look to raise the €1.8bn through a combination of debt and equity.
Like the rest of the Irish banks it will have to undergo an EU-wide stress test of the banking system provisionally set for next March. If the tests are conducted according to normal market conditions then it reduces the likelihood that the bank will have to raise further capital.