AIB assigned top credit rating for €15bn loan notes

AIB has been assigned a AAA credit rating, the top ranking of a bank's ability to repay borrowings, for €15 billion worth of euro medium-term notes - essentially unsecured loan notes - which will allow the bank to borrow billions in the wholesale funding markets.

This is regarded as the initial step in AIB raising longer-term funding from banks and investors in the global markets, using the State guarantee for the first time.

Two ratings agencies, Fitch and Standard Poor's, yesterday assigned AAA ratings to AIB's €15 billion new programme of State-guaranteed euro medium-term notes, although the bank will seek to raise only part of this amount.

A bank has to set the maximum amount it could raise first so it can be rated. It can then use this rating to sell the notes to investors. AIB is expected to try to raise term funding to meet its existing commitments over the coming weeks.

AIB will be the first Irish bank to raise funding using the guarantee. Bank of Ireland, Irish Life Permanent and Anglo Irish Bank are expected to follow in a planned sequence, co-ordinated by the Department of Finance, which will allow each bank the opportunity to tap the funding markets.

Fitch said the guarantee gives AIB the benefit of the AAA rating, the ranking assigned to the Government, on any term debt issued under its loan note programme.

The rating agency said that no note issued by AIB shall have a scheduled maturity date falling after September 29th, 2010 - the date the guarantee expires - giving investors a State-covered security. "This programme is the first to be issued under the Irish Government's credit institution financial support scheme, and Fitch expects other banks in the scheme also to issue Government-guaranteed notes," the agency said.

AIB and Irish Life Permanent have both said they intend to issue term funding using the guarantee.

Bank of Ireland said at its half-year results on Thursday that it would shortly issue term funding inside the guarantee scheme.

Niamh Hore, financial analyst with Davy stockbrokers, said in a research note on Thursday: "We suspect [and hope] that the Irish banks come to the market sooner rather than later given both the increased supply from other players and as the Christmas period approaches the window of opportunity narrows."