Sør Boligkreditt covered payment delay has ‘no credit impact’

A brief payment delay on a covered bond from Norway’s Sør Boligkreditt that matured last month and which was due to an operational error has no credit impact and is extremely unlikely to happen again, according to Moody’s, which rates the issuer’s covered bonds Aaa.

The Sør Boligkreditt issue was due on 26 September but because of a “technical error in the payment process”, in Moody’s words, whereby custodian DNB Bank had failed to update the maturity date when it was amended in September 2011, the payment was not made.

The payment was then made on 29 September — one working day later, noted Moody’s — with investors receiving three days’ additional interest.

“The cash to repay the bond was available in the issuer’s account, and the bank immediately ordered the bond’s repayment once the error was acknowledged,” said the rating agency.

“The issuer confirmed the maturity dates of the outstanding covered bonds were correctly set in the payment chain so that the error will not happen again in the future,” it added.

Moody’s noted that such an operational error does not trigger a default of the covered bond under the contractual agreement.

“Moody’s definition of default is intended to capture events whereby issuers fail to meet their debt-service obligations as outlined in original credit agreements and indentures, and which subject those creditors to economic loss,” it said. “According to the contractual documentation of the programme, upon failure of the issuer to fulfil its payment obligation, the maturity is automatically extended by one year. As a consequence of this feature of the programme — Norwegian standard — there has been no default of the covered bonds.

“In addition, because the cash was already available in the issuer’s account, the bond trustee did not need to call the liquidity facility granted by Sparebanken Sør (A2/P-1), the sponsor bank to the issuer (Sør Boligkreditt).”