Aktia ‘breathes easier’ after surprise Moody’s move

Timo Ruotsalainen, Aktia Real Estate Mortgage Bank managing director, said that a Moody’s downgrade of the issuer’s covered bonds from Aa1 to Aa3 last Friday, which was less harsh than had been expected, was a pleasant surprise and that any decision on a potential liability management exercise was now less pressing.

Aktia REMB announced on 12 September that it would cease actively issuing covered bonds, with Aktia Bank plc, its largest owner, planning to issue directly. The move came after Aktia Bank was downgraded from A1 to A3 in February. Aktia REMB is not publicly rated, but has an implied rating three notches lower than the issuer.

Some market participants had been expecting a downgrade to A1 based on these ratings and the programme’s Timely Payment Indicator, but Moody’s on Friday said it had improved the TPI from “probable” to “probable-high”.

The rating agency noted that during the wind-down period of the portfolio held by Aktia REMB, the issuer and its owners have decided to trap all cashflows stemming from the two separate covered bond portfolios in the respective cover pools until the redemption of all outstanding covered bonds backed by these portfolios.

“When assessing the TPI of a covered bond programme, Moody’s takes various aspects into account, including refinancing risk and the potential impact of issuer discretion on the programmes,” it said. “The issuer intends to substantially maintain the current cover pool compositions, meaning the cover pools will not be subject to future discretionary alteration which could reduce the overall quality.

“Maintaining this high quality of the assets in the cover pool will have a positive impact on potential refinancing risk, as does the issuer’s intention, as expressed towards Moody’s, to segregate all future cashflows for the benefit of the respective cover pools until the final redemption of all outstanding covered bonds. Whilst not removing refinancing risk, the liquidity situation of the cover pools will significantly improve over time, thereby reducing refinancing risk.”

Ruotsalainen told The Covered Bond Report that he was pleasantly surprised by the move.

“The goodwill over the TPI was very much welcomed,” he said. “That they did it now because the amortisation of mortgage loans will bring more liquidity and there is healthy level of overcollateralisation makes sense.”

Ruotsalainen said that although the downgrade process had already caused problems for Aktia REMB and its stakeholders, he was happy that the downgrade was less than had been feared.

He said that the ratings news makes less pressing a decision on how Aktia might go about any liability management exercise, even if the move to establish the new Aktia Bank plc programme will go ahead as scheduled.

“We can breathe a little easier,” he said. “We will certainly continue considering an exchange in due course, but the pressure has eased given that it will be easier for some investors to keep the bonds in their portfolios if they are Aa3 rated.

“When we received feedback from investors they said that the important issue was whether or not the line from double-A to single-A would be crossed, and that has not happened.”