UK’s M&G buys up most equity in Bank of Ireland bond deal

M&G has bought 95% of the lowest rank notes of a bond deal Bank of Ireland used this month to refinance buy-to-let mortgages

UK asset manager M&G Investments has emerged as key to Bank of Ireland being able to remove €375 million of problem loans from its balance sheet.

The investment group, a unit of London-based life insurance giant Prudential, has bought 95 per cent of the lowest rank notes – or equity portion – of a bond transaction Bank of Ireland used this month to refinance the non-performing, but mainly restructured, buy-to-let mortgages in the bond market.

The process, known as securitisation, entitles buyers of the bonds to interest payments based on income from the mortgages.

M&G has bought almost all of the €41.5 million of so-called Z Notes in the deal, with higher ranked notes, from A to E, which have greater entitlements to income from the securitised loans, having been placed in recent weeks in the wider market. That’s according to bond prospectus documents linked to the deal.


Bank of Ireland announced at the end of March that it was planning to securitise the €375 million of mortgages to lower its non-performing loans (NPLs) ratio to 5.8 per cent from 6.3 per cent at the end of December.

Rival Permanent TSB used a similar transaction last November to shift €1.3 billion of restructured loans off its books.

Bank of Ireland chief executive Francesca McDonagh told the Oireachtas finance committee on April 4th that she may sell further distressed loans after the securitisation deal – known as Mulcair Securities – is completed to lower its level of NPLs to about 5 per cent.

Permanent TSB is currently moving the day-to-day servicing of the loans it securitised to a new servicer, Pepper Finance Corporation, having being advised by its lawyers that this is necessary to ensure that the assets move off its balance sheet.

However, Bank of Ireland executives told the Oireachtas committee that they were satisfied that they can continue to service the Mulcair Securities loans and get the benefit of shifting them off its books.

Average size

Still, the bond prospectus for Mulcair Securities states that loan servicer CSC Capital Markets has been lined up as a replacement administration facilitator, if it is needed to step in.

M&G, as the holder of most of the Z notes, only has to give nine months’ notice to replace Bank of Ireland as the day-to-day manager of the loans. Unusually, this right isn’t linked in the documents to performance.

The bank may resign after three months’ notice. A spokesman for the bank said that a change of loan servicer wasn’t anticipated.

The Mulcair Securities vehicle holds 1,730 loans with an average size of €217,000. The loans pertain to 790 different customers. The average weighted remaining term of the portfolio is just over 14 years, and the bank has held the mortgages for an average of 12.5 years.

The Irish Times reported last December that US investment powerhouse Pimco had bought up the rights to most of the income from Permanent TSB’s securitisation by buying the majority of notes in the deal. The Irish bank has never spoken publicly about the buyer.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times