Standard & Poor’s has downgraded its rating on AIB’s lower Tier 2 debt, and warned of further possible cuts to come.
The agency’s decision came only days after Moody’s cut the deposit ratings of five Irish financial institutions to junk status.
The move was taken due to the High Court’s approval last week of the Minister for Finance’s request to change the terms and conditions on AIB’s dated and perpetual subordinated debt, an order that is subject to appeal until tomorrow.
Under the court order, several changes were imposed including changes to interest payments, extensions of maturities on some loans and the removal of restrictions on dividend payments or buybacks on some debt issues.
"The lowering of the ratings on AIB's lower Tier 2 debt reflects our opinion that the decision of the Irish High Court indicates an increasing risk of default, but that it has not yet taken effect," said Standard & Poor's credit analyst Sean Cotten.
"Assuming that the order takes effect, we consider that the intended changes to the terms and conditions will be tantamount to an immediate default on the affected notes. As a result, we would expect to lower the ratings on the notes to 'D'."
However, the downgrade does not affect State guaranteed debt, or unguaranteed senior instruments.
This morning, S&P said its BB/B counterparty credit ratings on AIB were unaffected, remaining on CreditWatch negative. The agency is waiting for a review of AIB's restructuring plan, and further details on capital injections from the State.
