Storebrand late payment ‘technical’, credit quality ‘unaffected’

Storebrand Boligkreditt repaid a maturing Norwegian krone covered bond two days late last week, according to Moody’s, which said that the payment delay was due to a technical error, is not considered a default, and has not affected the credit quality of the programme.

According to an official at the Norwegian institution, the bond was for Nkr943m (Eu101m), of which parent Storebrand Bank owned Nkr540m.

The rating agency said that Storebrand Boligkreditt was due to redeem the covered bond on Wednesday of last week (15 June), but due to a technical error in the payment process it failed to make the payment. Moody’s said this was an “operational error”, whereby the bond’s maturity date was not correctly entered in the Norwegian Central Securities Depositary (VPS), with the extended final maturity date (in June 2017) rather than the scheduled maturity date being registered for the soft bullet covered bond.

The bank immediately informed investors and other involved transaction parties, according to Moody’s, and repaid the bond on Friday (17 June), paying two additional days’ interest.

“This type of operational error does not trigger a default of the covered bond under the contractual agreement or Moody’s definition of default,” said the rating agency.

Moody’s added that while it considers that the failure to rectify the error prior to the redemption shows some weakness in the bank’s existing control processes, the issuer has regular control routines in place to discover such errors, and has confirmed it is taking measures to impose better control routines in order to ensure the error does not happen again in the future.

The rating agency’s comments reflect those it made after Norwegian issuer Sparebanken Sør made a similar error on a soft bullet covered bond in September 2014.

Storebrand Boligkreditt’s covered bonds are rated Aaa by Moody’s, with a Timely Payment Indicator (TPI) of “high”.