Aktia floats potential covered swap as new issuers eyed

The possibility of Aktia Bank launching a liability management exercise offering investors the option to switch into its covered bonds once it begins issuing directly next year has been raised by Aktia Real Estate Mortgage Bank, while some market participants have said that the Finnish group’s erstwhile partners could issue on their own.

The Finnish bank on 12 September announced a change in issuance procedure — enabled by changes to Finnish legislation in 2010 — to issue directly as Aktia Bank rather than through Aktia Real Estate Mortgage Bank (REMB) and is targeting being ready to issue directly by the end of the first quarter of 2013.

Aktia has so far accessed the covered bond market through REMB. It owns 50.9% of Aktia REMB (and 70% of the voting shares), with the Finnish Savings Banks Group (Säästöpankki) owning 37.2% and Finland’s Pop Pankki co-operative banks 11.9%.

However, Aktia Bank was downgraded from A1 to A3 in February and Aktia REMB covered bonds have been on review for downgrade, with Aktia REMB not publicly rated but having an implied lower rating than Aktia Bank. Atkia said in a presentation that Moody’s is expected to conclude the review in the coming few weeks and a downgrade from Aa1 to A1 of the covered bonds is possible based on an application of the rating agency’s methodology.

Measures to avert such a downgrade by methods such as altering the ownership structure of Aktia REMB or strengthening it in various ways were discussed, but no satisfactory agreement was reached between the owners.

In a conference call last Thursday the possibility of a liability management exercise involving Aktia REMB covered bonds and new Aktia covered bonds was raised.

“Among the ideas that we have been discussing is that we might be able to provide some sort of support in the form of a switch for the bonds that mature in, say, 2015-2016,” Timo Ruotsalainen, Aktia REMB managing director, told The Covered Bond Report. “Our sense is that for some investors the expected lower rating of Aktia REMB covered bonds could be an issue, so providing a switch or some other type of liability management exercise for investors would be positive for them in that Aktia Bank’s covered bonds should be rated somewhat higher.

“My guess would also be that Aktia Bank’s inaugural deal would be a plain vanilla issue introducing the new credit,” he added, “and that in due course we might have the opportunity to provide investors the opportunity to switch.”

Aktia REMB’s three owners have said they are committed to safeguarding the quality of its cover pool and ensuring that agreed capital and liquidity targets are met.

Market participants said that with Aktia REMB no longer being an option for financing, the Säästöpankki and Pop Pankki could each issue their own covered bonds and that the possibility is under consideration.

However, one pointed out that neither grouping has a centralised entity appropriate as an issuer nor any lead member with a rating that would facilitate issuance.

Apart from Aktia REMB, Finland has three existing covered bond issuers: Nordea Bank Finland, OP Mortgage Bank and Sampo Bank.

Nordea began issuing in Finland after the country’s legislation was amended in 2010.Sampo had before then, and before becoming a Danske Bank subsidiary, issued via Sampo Housing Loan Bank. As of 15 November Sampo will be renamed Danske Bank.

Photo: Aras Jarjis/Hbl