S&P Revises Outlook on Ireland to Stable After Bank Agreement

Standard & Poor’s Ratings Services revised its outlook on Ireland to stable from negative, after the government reached an accord with the European Central Bank to ease the burden of the nation’s bank bailout.

Under the plan, Ireland will stretch out the repayments on the bailout of the former Anglo Irish Bank Corp. by swapping so- called promissory notes used to rescue the failed lender with 25billion euros ($33.5 billion) of long-term government bonds with maturities of up to 40 years.

“We believe the success of the exchange increases the likelihood of a full return by Ireland to private financing and therefore, of Ireland successfully exiting the EU/IMF bailout program, at the end of 2013,” said S&P, which affirmed the country’s “BBB+” rating.

The government is racing to exit the international bailout the country sought in 2010, as its rescue of the financial system left the nation close to bankruptcy. Irish taxpayers faced a 63 billion euro-bill for rescuing its debt-laden banks after a real estate bubble burst.

“The improvement in sentiment towards Ireland over thepast year shows no sign of letting up,” said Philip O’Sullivan, an economist at NCB Stockbrokers in Dublin. “We anticipate further positive developments on the ratings agency front over the coming months.”

The yield on Ireland’s 5 percent security due in October 2020 traded at 3.8 percent yesterday, down from 4.17 percent last week. The yield has fallen from 14 percent in July 2011.

Moody’s Investors Service credit analyst Dietmar Hornung said in an interview on Feb. 7 that its junk rating of Ireland remained “appropriate” after the bank accord.

While the agreement is “credit positive” for Ireland, the country continues to face “significant challenges,” he said. Moody’s has Ireland at Ba1, the rating company’s highest non- investment rating, with a negative outlook.\

Depressingly Low

The head of Ireland’s National Treasury Management Agency, John Corrigan, told reporters last month that his officials are hounding Moody’s over its “depressingly low” stance, which is three notches below Standard & Poor’s and Fitch Ratings. Investors are increasingly relying on their own research, he said.

Ireland’s credit rating was cut one level by Standard & Poor’s in April 2011, as the cost of the banking bailout rose.

In almost half the instances, yields on government bonds fall when a rating action by S&P and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the U.S. government in August, Treasury yields fell to records.

The debt agency may seek to sell a syndicated bond through banks as early as this week after the government’s borrowing costs fell in the wake of the Anglo accord, analysts said.

“We expect any new long-term bond issuance by the NTMA in the coming weeks. which seems quite likely to increase the pressure on Moody’s to change their outlook to stable, and possibly even positive, in the next few months,” Owen Callan, a Dublin-based analyst at Danske Bank said.

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Finbarr Flynn in Dublin at fflynn3@bloomberg.net

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