IRELAND, Sep. 10, 2009 (Info-Prod Research) -- Moody's Investors Service today downgraded toBa3 from Baa3 the junior subordinated debt with optional deferralprovision (upper Tier 2) of Allied Irish Banks plc (NYSE:AIB) (AIB) and Bank ofIreland (BoI). The outlook on all the securities is changed to negative. There has been no change to the other ratings of the banks (AIB and BoI are rated A1/P-1/D) or to the Aa1 (negative outlook) rated government-guaranteed debt issued by the banks. Ross Abercromby, Senior Analyst at Moody's Investors Service, commentedthat "Moody's downgrade of these instruments reflects our assumption of ahigher probability of coupon suspension on these securities as a resultof the ongoing discussions between the Irish government and EuropeanCommission ("EC") on the planned establishment of NAMA". This followsMoody's press release entitled "Moody's sees broader impact on hybridratings triggered by EC's state aid reviews", published on 19 August2009." Moody's understands that the establishment of the National AssetManagement Agency still requires EC approval. Moody's has previouslydowngraded the Tier 1 securities of AIB and BoI to B1 (cumulativeinstruments) and B3 (non-cumulative instruments) to reflect the highlikelihood that the EC may require the banks to defer coupons on Tier 1instruments, in line with its objective of burden sharing. However,Moody's is now incorporating the risk that the EC could also advise thebanks to refrain paying coupons on the cumulative junior subordinatedsecurities that have an optional deferral provision. Moody's is now assuming a higher probability of omission of coupons, but notes that the coupon payments on these instruments are cumulative,thereby limiting the loss severity of a coupon deferral if it were to occur.