The funding achieved by Bank of Ireland on the back of the index linked securities issuance is uniquely the only non-deposit based ‘Opco’ debt issued by Bank of Ireland. Funding spreads, whilst not disclosed, are inside levels achieved that would be achieved through direct Opco issuances due to the efficiency of the issuance platform.
Bank of Ireland established its Index Linked Securities programme in response to client needs for structured market linked returns across a variety of asset classes, formats and tenors in transferable format. As the bank does not have a retail notes programme, it entered into arrangements with a third party institution to leverage the flexibility of its Luxembourg-based SPV’s issuance capabilities. The securities are issued by the SPV, with the third party institution acting as Arranger and Dealer. Each tranche is issued from a separate bankruptcy remote cell within the SPV.
The SPV’s legal structure is such as to ‘ring-fence’ assets and liabilities for each separate product from the other assets and liabilities under its management. Luxembourg law provides a statutory basis for ring-fencing liabilities within different compartments of special purpose securitisation vehicles, with this statutory protection together with the flexibility of the programme critical to enabling delivery of Bank of Ireland’s product solutions.
A new cell is established each time Bank of Ireland launches a new tranche, with each cell entering into a fully funded swap with Bank of Ireland as a hedge against its obligations to the end investor. In this way, funding is generated by the bank, which remains the principal source of credit exposure for investors. Each tranche of securities is offered on a private placement basis with a minimum investment of €100,000 per investor per issue.
The Index Linked Securities platform affords Bank of Ireland substantial issuance flexibility and investor choice including equities, indices or basket of indices, and foreign currency prices.
In addition customised payout styles are possible such as Delta One, Auto-Callable and Reverse Convertible. Delta One replicates the performance of the underlying asset on a 1:1 basis, i.e. the product is designed to track the performance of the underlying asset exactly.
A Reverse Convertible payout style is possible. The payout on the Reverse Convertible strategy includes a fixed element and exposure to any downside in the value of the underlying asset. The final payout includes the fixed element (for example 5 per cent to 15 per cent of the reference price of the underlying asset) and (i) if the price of the underlying asset is greater than or equal to the reference price, an amount corresponding to 100 per cent of the reference price or (ii) if the price of the underlying asset is below the reference price, then the investor’s capital is reduced 1:1 with the movement in the underlying asset’s price.
Autocallable products offer a potential high yield and a variable maturity (Bank of Ireland's issuances are typically in the 6 to 10 year range). The product is structured to mature early if the underlying asset exceeds the reference price on pre-set valuation dates (usually semi-annually) upon which the investor receives an amount corresponding to 100 per cent of the reference price plus a pre-set fixed return (high single digit to low double digit returns are typical). If the product has not been called early, and at maturity the reference price has not breached a pre-determined barrier level, the product returns an amount corresponding to 100 per cent of the reference price. The barrier level is typically 60 per cent to 70 per cent of the reference price providing a substantial "cushion" against losses in market downturns. If the underlying price falls below the barrier level the investor’s capital is fully exposed to a loss equivalent to the movement in price of the underlying asset by maturity which can be up to 100 per cent of invested capital.
All Bank of Ireland’s issuance in 2018 has been in the Auto-Callable format which has proven very successful for clients. Commenting on the success of the programme, Mark Caffrey, Head of Investment Development said "Bank of Ireland continues to deliver client centric innovations in its investment solutions. In 2018, we issued 10 tranches on the programme in addition to arranging the sale of a further €114 million of securities on behalf of our clients delivering average customer returns of almost 14 per cent.”