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BOI brings €400m deal to market Back  
Bank of Ireland has launched a securitisation deal, despite the adverse conditions in the market,
created by the credit and liquidity crisis. The deal is the first Irish embedded value securitisation deal,
and the first open book deal in Europe.
Despite crisis conditions in the credit markets, Bank of Ireland has successfully launched one of the few Irish securitisation issuances this year, And the deal is not just a first for Bank of Ireland, it is an innovative deal that has not been done before in Europe. Avondale Securities S.A., is a €400 million embedded value securitisation which references the value in force, or surpluses, from its life assurance subsidiary New Ireland Assurance.

The deal is notable for attaining a number of firsts - it is the first Irish embedded value securitisation deal; the first time Bank of Ireland has done a deal of this type; the first such euro deal; the first such synthetic deal; and it is the first open book deal in Europe.

Lewis Love, head of asset and liability management at Bank of Ireland, said that despite the credit crunch the deal was a success because the asset type is non-correlative to consumer debt, such as mortgages and credit cards. This means that it attracted a different type of investor to ABS deals.

However, he conceded that if market conditions were different, he would have done the deal unwrapped - as it was, €380 million of A1 notes were wrapped by Ambac.
The main reason for doing the deal was to make more efficient use of the bank’s capital says Love.

It is expected that the transaction, subject to confirmation by the Financial Regulator, will result in the enhancement of the bank’s core Tier 1 capital due to the reclassification of certain capital reserves from Tier 2 capital.

The transaction, which was arranged by Lehman Brothers and Goldman Sachs, involved the monetisation of part of the value-in-force of a portfolio of life insurance contracts written by Bank of Ireland Life, utilising a combination of structured finance and hybrid capital technologies. The deal provides protection to Bank of Ireland against a fall in the value-in-force of the policies and thereby maximises the regulatory capital benefits that Bank of Ireland receives from the portfolio. Freshfields Bruckhaus Deringer and A&L Goodbody provided legal advice on the deal.

And the deal is not just a first for BOI. Simeon Rudin, the Freshfields finance partner who led the deal commented, ‘This transaction is the next generation of value-in-force financings. It is the first synthetic transaction of it kind, the first public deal to monetise the value-in-force outside the life company and the first to relate to a dynamic portfolio of insurance policies, while ensuring group regulatory benefits can be obtained, thereby allowing flexibility in the use of capital raised’.

Embedded value securitisation helps life companies to punch their weight by releasing some of the embedded value in their business. According to Rudin, ‘This transaction represents a major step forward for banks and insurance groups seeking to monetise the value-in-force in insurance subsidiaries to improve their capital position’.

Last year Bank of Ireland did two large mortgage securitisations - a €2.95 billion Irish RMBS called Kildare Securities, and a €5.5 billion U.K. RMBS called Brunell, and the bank had been looking at doing a follow-up deal to its Partholon collateralised debt obligation (CDO) transaction, which it launched in 2003, but Love said that current market conditions means such a deal doesn’t make sense at the moment, and it isn’t something the bank really needs to do in any case.

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