S&P ups BRF General covered on OC surprise

Standard & Poor’s upgraded covered bonds issued out of BRFkredit’s General Capital Centre from AA- to AAA on 27 December, citing higher than expected levels of overcollateralisation for the programme.

The rating agency said that it had initially understood that BRFkredit would manage the programme with an overcollateralisation level commensurate with a AA- rating.

“However, the actual level of overcollateralisation has been consistently higher than this, and we currently have no indication that the issuer will, within the short term, reduce overcollateralisation or change the risk profile of the covered bonds,” said S&P.

“We have therefore raised the ratings to AAA, based on the current overcollateralisation level.”

The upgrade came after a review of the capital centre’s asset and cashflows as of 30 September 2013. S&P assigned the previous, AA- rating to the covered bonds in March 2012.

BRFkredit is rated A-, on negative outlook, and under S&P’s asset-liability mismatch (ALMM) criteria the covered bonds can be rated up to seven notches higher than this. The rating agency judges the ALMM risk of the General Capital Centre covered bonds to be “low” and the programme is assigned to Category 1 under its methodology, which allows the top AAA rating to be achieved.

The outlook on the Realkreditobligationer (ROs) is stable, reflecting that if S&P were to downgrade the issuer a downgrade of the covered bonds would not automatically be triggered since only six of the seven possible notches of uplift are being used. The rating agency noted that this means that a change in ALMM risk would also not affect the covered bond rating.