London, 04 February 2011 -- Moody's Investors Service has assigned a definitive rating of Aa3 to the
following series of covered bonds issued by Nykredit Realkredit A/S ("Nykredit"
or the issuer) under the Danish Covered bonds law:
- Covered Bonds: issuance out of Capital Centre G; Aa3;
new rating
RATINGS RATIONALE
As with all covered bonds, the covered bonds benefit from two layers
of protection by having recourse to both the issuer and a collateral pool.
The rating therefore takes into account the following factors:
1) The credit strength of the issuer, rated A1, Prime-1.
2) The value of the cover pool. The mortgage covered bonds are
backed by commercial mortgage loans and loans to housing co-operatives.
Other key factors:
3) The issuer maintains the minimum over-collateralisation required
by law, Corresponding to 8% of risk-weighted assets.
The actual over-collateralisation is currently 6.0%
of the covered bonds nominal amount. The current rating does not
rely on a minimum over-collateralisation level.
4) The Danish legal framework for covered bonds, as the covered
bonds are governed by the Danish Covered Bond law. This particular
issuance out of capital centre G is governed by the Danish Mortgage-Credit
Loans and Mortgage-Credit Bonds Act as applied to mortgage bonds
(realkreditobligationer, RO).
Moody's has assigned a Timely Payment Indicator (TPI) of "Very
High" to the covered bonds, which reflects a very high likelihood
of timely interest and principal payments.
Moody's TPI assessment is positively influenced by the provisions
of the law as regard the balance principle.
As of September 2010, the total value of the assets included in
the cover pool, comprising mortgage loans, is approximately
DKK 8,3bn. The cover pool assets are commercial real estate
loans and loans to housing co-operatives (97%, 3%
respectively). The loans have a weighted average seasoning of 11
months and a weighted average remaining term of 25 years. Capital
centre G is characterised by a high level of loans ranking after loans
in other capital centres, affecting the repayment upon property
enforcement.
Moody's has considered these prior ranks in its default risk and
loss severity calculations. The weighted average loan-to-value
(LTV) ratio is currently 60% (including prior ranks). Based
on the relevant mortgage bonds law (realkreditobligationer), an
increase of the LTV above the statutory lending limit of 60% for
commercial properties and 80% for residential properties does neither
cause the ineligibility of the loan as collateral for the covered bonds
nor oblige the issuer to add extra collateral.
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
to investors. The Aa3 rating assigned to the issuer's existing
covered bonds is expected to be assigned to all subsequent covered bonds
issued by the issuer out of capital centre G and any future rating actions
are expected to affect all such covered bonds. Should there be
any exceptions to this, Moody's will in each case publish
details in a separate press release.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and TPI framework analysis.
EXPECTED LOSS: Moody's determines a rating based on the expected
loss on the bond. The primary model used is Moody's Covered
Bond Model (COBOL) which determines expected loss as a function of the
issuer's probability of default, measured by its rating of
A1, and the stressed losses on the cover pool assets following issuer
default.
The Cover Pool Losses for this programme are 53.5%.
This is an estimate of the losses Moody's currently models in the
event of issuer default. Cover Pool Losses can be split between
Market Risk of 2.5% and Collateral Risk of 51.0%.
Market Risk measures losses as a result of refinancing risk and risks
related to interest rate and currency mismatches (these losses may also
include certain legal risks). Collateral Risk measures losses resulting
directly from the credit quality of the assets in the cover pool.
Collateral Risk is derived from the Collateral Score which for capital
centre G is currently 76.1%.
The collateral score reflects the credit risk of 3,136 loans.
There are pool concentrations in loans secured by agriculture properties
(approximately 43% of the pool) and some geographic concentrations
to rural areas. Moreover, Moody's assessment considers
the bifurcation of the loan pool in terms of leverage.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator"
(TPI) which indicates the likelihood that timely payment will be made
to covered bondholders following issuer default. The effect of
the TPI framework is to limit the covered bond rating to a certain number
of notches above the issuer's rating.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
The number of notches by which the issuer's rating may be downgraded
before the covered bonds are downgraded under the TPI framework is measured
by the TPI Leeway. Based on the current TPI of Very High the TPI
Leeway for this programme is four notches, meaning the issuer rating
would need to be downgraded to Baa3 before the covered bonds are downgraded,
all other things being equal.
A multiple notch downgrade of the covered bonds might occur in certain
limited circumstances. Some examples might be (a) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and
the TPI; (b) a multiple notch downgrade of the issuer; or (c)
a material reduction of the value of the cover pool.
For further details on Cover Pool Losses, Collateral Risk,
Market Risk, Collateral Score and TPI Leeway across all covered
bond programmes rated by Moody's please refer to "Moody's
EMEA Covered Bonds Monitoring Overview", published quarterly.
These figures are based on the most recent cover pool information provided
by the issuer and are subject to change over time.
The principal methodology used in this rating was Moody's Rating
Approach to Covered Bonds published in March 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings.
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 amendment resulting from that disclosure.
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 www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Justyna Kochanska
Associate 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 assigns definitive rating Aa3 to Danish covered bonds issued by Nykredit Realkredit A/S, Capital Centre G
