Mortgage Society of Finland set for H1 covered debut

The Mortgage Society of Finland is set to launch a debut, Eu250m covered bond from a new programme within the next three months and aims to become a frequent issuer, according to an official at the Finnish credit institution, after it received a preliminary AAA rating from S&P.

The Mortgage Society of Finland (Suomen Hypoteekkiyhdistys, or Hypo) finalised its new mortgage covered bond programme after receiving approval from the Finnish FSA today (Friday) and after S&P yesterday assigned the programme a preliminary rating of AAA, on stable outlook.

Petteri Bollmann, director of treasury and funding at The Mortgage Society of Finland, said the first issue from the programme will be sized at Eu250m and should arrive in the first half of 2016, subject to market conditions.

“The covered bond market is of course a good source of long term funding and relatively inexpensive funding, and that is the main reason we are entering this market” he said. “All of our lending is against residential mortgages, so we are a natural covered bond issuer.”

The Mortgage Society of Finland had a loan portfolio, comprising only residential mortgages, of Eu1.42bn as of 31 December.

Bollmann added that the issuer does not expect to print benchmark-sized covered bonds in the near future, but said it plans to frequently return to the market with sub-benchmark deals.

“We are a fairly small domestic player in the mortgage market,” he said. “We are growing, so maybe eventually, but not in the foreseeable future.

“However, we expect to be a regular issuer of Eu250m covered bonds, with yearly issues.”

S&P said its credit analysis for the preliminary rating is based on a provisional cover pool as of January 2016. It said the programme’s underlying assets comprise Eu366.7 million of Finnish residential mortgage loans (51.7%) and loans to housing companies (48.3%).

It said the weighted average current LTV ratio was 38% while WA seasoning is 42 months.

S&P said the available credit enhancement of 48.92% exceeds the target credit enhancement of 20.23% needed for a AAA rating, and said that it expects the issuer to provide a public statement stating its intention to maintain a level of overcollateralisation that is consistent with the current rating.

It added that the stable outlook on the rating reflects the fact that the covered bonds benefit from one unused notch of collateral-based uplift.

The Central Bank of Savings Banks Finland is expected to issue a debut covered bond in 2016, after setting up a mortgage bank.

Nordea also plans to switch its Finnish issuance from Nordea Bank Finland, which is set to be converted into a branch of the Swedish parent, to a new demerged entity, Nordea Hypoteksbank. The bank is today due to complete a consent solicitation seeking approval from holders of Nordea Bank Finland covered bonds for the changes.

The moves would mean three new Finnish covered bond issuers will come to fruition this year.