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Rating Action:

Moody's announces OC levels for Danish covered bonds following issuer downgrades

01 Jul 2011

BRFkredit Capital Centre E downgraded to Aa2 from Aa1; Junior covered bonds of Nykredit Realkredit Capital Centre E downgraded to A2 from A1

London, 01 July 2011 -- Moody's Investors Service has today announced the over-collateralisation (OC) levels necessary to maintain the current ratings on various Danish covered bonds following the downgrade of the mortgage credit institutions' issuer ratings. The new minimum OC levels consistent with the current covered bond ratings are as follows:

BRFkredit Capital Centre B, rated Aa3: 8.5%

BRFkredit General Capital Centre, rated Aa3: 5.0%

DLR Kredit A/S Capital Centre B, rated Aa1: 16.0%

DLR Kredit A/S General Capital Center, rated Aa1: 8.5%

Nykredit Realkredit A/S Capital Centre C, rated Aa1: 0.0%

Nykredit Realkredit A/S Capital Centre D, rated Aaa: 7.0%

Nykredit Realkredit Capital Centre E, rated Aaa: 11.5%

Nykredit Realkredit A/S General Capital Centre, rated Aa1: 3.5%

Nykredit Realkredit A/S Capital Centre G, rated Aa3 on review for downgrade: 12.0%

Totalkredit Realkreditfond Capital Centre C, rated Aaa: 1.5%

The OC numbers above should be in "committed" form for the covered bond programmes of BRF and DLR in order for Moody's to give full value to the OC in our analysis. For Nykredit's covered bond programmes, Moody's will continue to give full value to over-collateralisation that is held in a "voluntary" form. The OC numbers may change if programmes are restructured.

Furthermore, Moody's has taken the following rating actions:

- Covered bonds issued out of BRFkredit Capital Centre E: downgraded to Aa2; previously Aa1 due to the application of Moody's TPI framework. The new OC consistent with this rating level is 14.5%.

- Junior covered bonds issued out of Nykredit Realkredit Capital Centre E: downgraded to A2; previously A1 on review for downgrade. Moody's has downgraded these covered bonds following the rating action on the issuer as the junior covered bond ratings are aligned with the issuer rating.

RATINGS RATIONALE

Today's announcement of the OC levels follows the downgrades on 1 July 2011 of the issuer ratings supporting the covered bond programmes. The following issuer rating downgrades have occurred:

BRFkredit A/S, downgraded to Baa3, previously Baa1 (negative outlook);

DLR Kredit A/S, downgraded to Baa1, previously A3 (negative outlook);

Nykredit Realkredit A/S, downgraded to A2, previously A1 (on review for downgrade).

The outlook on the issuer ratings remains negative.

For further information on the rating actions taken by Moody's Financial Institutions Group, please refer to the press releases published on 1 July 2011.

The downgrades of the issuer ratings negatively affected the covered bonds through their impact on both the expected loss method and the timely payment indicator (TPI) framework.

EXPECTED LOSS METHOD

As the issuer's credit strength is incorporated into Moody's expected loss assessment, any downgrade of the issuer's rating will increase the expected loss on the covered bonds. At the latest reporting date the following programmes from the list above had sufficient OC in the required form to offset the expected loss increase and hence to maintain their current ratings:

Nykredit Realkredit A/S Capital Centre C

Nykredit Realkredit A/S General Capital Centre

Totalkredit Realkreditfond Capital Centre C

At the latest reporting date the remaining programmes had (i) an OC level below that which is consistent with the current ratings; and/or (ii) existing OC that is not in a form Moody's fully values in its analysis. Moody's notes that DLR's General Capital Centre had 10.5% OC in place on a voluntary basis at the latest reporting date, versus 8.5% minimum OC level consistent with the current rating. However, the OC provided would need to be "committed" for Moody's to give it full value in the expected loss analysis. Moody's considers OC to be "committed" if the issuer's discretion to remove this is sufficiently restricted.

Over the coming days Moody's will monitor the issuers' decisions concerning levels and form of OC, incorporate them into its rating assessment and update the market. If an issuer decides to add further collateral to its programme, in appropriate form, the current rating is expected to be maintained.

TPI FRAMEWORK

The BRF Capital Centre E rating has been downgraded to Aa2 from Aa1 due to the application of Moody's TPI framework. The combination of the Baa3 issuer rating and the TPI of "High" has constrained the rating of these covered bonds to Aa2. The TPI framework has not constrained any of the other programmes impacted by the issuer rating downgrades.

RATING METHODOLOGY

Moody's rating for any covered bond is determined by applying a two-step process:

(1) Moody's determines the covered bond rating based on the expected loss of the bond. Moody's considers that all the covered bonds benefit from two layers of protection by having recourse to both the issuer and the collateral pool. The expected loss is therefore modelled as a function of the issuer's probability of default and the stressed losses on the cover pool assets following issuer default.

(2) Moody's assigns a TPI which indicates the likelihood that timely payment will be made to covered bondholders following issuer default. The effect of the TPI is to limit the covered bond rating to a certain number of notches above the issuer's rating.

The principal methodology used in this rating was "Moody's Rating Approach to Covered Bonds", published in March 2010. The rating assigned by Moody's addresses the expected loss posed to investors. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield and to investors.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the credit rating action. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

London
Alexander Zeidler
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's announces OC levels for Danish covered bonds following issuer downgrades
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