SSB in covered rating to aid buy-side confidence

Norway’s Sandnes Sparebank Boligkreditt has obtained a first rating of its covered bonds, AA- from Fitch, and an official at the issuer told Nordic FIs & Covered that the rating was sought to boost investor confidence in the programme.

Sandnes Sparebank (SSB) Boligkreditt was established in 2009 and had Nkr4.4bn (Eu560m) of covered bonds outstanding as of the end of August. It is a 100% subsidiary of Sandnes Sparebank, an established small regional savings bank operating predominantly in the oil-rich Rogaland region in Norway, mainly around Sandnes and Stavanger.

Fitch rated the Sandnes covered bonds on Tuesday, with the AA- rating on stable outlook.

A treasury official at Sandnes Sparebank told Nordic FIs & Covered that its covered bonds had not been previously rated, although Sandnes Sparebank was rated BBB by Fitch in December.

“The rating of the covered bonds was essentially sought to give investors further confidence in our covered bond programme to ensure the covered bond programme as a stable funding source going forward,” he said.

The issuer has no plans at present to issue covered bonds outside Norway, he added, but is keeping this option open for the medium to long term.

According to Fitch, around 84% of the loans in the SSB Boligkreditt cover pool are secured by properties located in Rogaland. The cover pool includes 49% of flexible mortgage loans, for some of which there is a collateral date but no loan maturity date stated in the contract.

The rating agency noted that this feature is not standard for flexible loans in Norway and implies more active management of the cover pool, and that SSB has recently initiated a procedure to implement maturity dates to all flexible loan contracts in the cover pool.

Fitch said that the geographical concentration along with the particularities of the flexible mortgage loans in the pool could increase refinancing risk in a stressed environment, and that it therefore lowered its score of the liquidity gap and systemic risk component of the Discontinuity Cap (D-Cap), from moderate to moderate high.

“As this is the weakest of the D-Cap components, the D-Cap for the programme is 3 (moderate high risk),” said Fitch.

The rating of the SSB Boligkreditt covered bonds also reflects an issuer default rating of BBB for SSB (the Boligkreditt is not rated) and a AA- breakeven overcollateralisation of 12.0%. The combination of these elements and the D-Cap allows the mortgage covered bonds to reach a maximum rating of A on a probability of default (PD) basis and AA- after factoring in stressed recoveries on the covered bonds.