Reuters logo
Fitch Affirms Danske Bank AS Mortgage Cover Pool C Covered Bonds at 'AAA'
May 26, 2017 / 4:31 PM / 4 months ago

Fitch Affirms Danske Bank AS Mortgage Cover Pool C Covered Bonds at 'AAA'

(The following statement was released by the rating agency) LONDON, May 26 (Fitch) Fitch Ratings has affirmed Danske Bank AS's (Danske, A/Stable/F1) mortgage covered bonds secured by the bank's cover pool C at 'AAA' with a Stable Outlook. KEY RATING DRIVERS The covered bonds' rating is based on Danske's Long-Term Issuer Default Rating (IDR) of 'A' and unchanged uplifts as follows: IDR uplift of two notches; payment continuity uplift (PCU) of five notches and recovery uplift of one notch. Also, the 25.9% over-collateralisation (OC) that Fitch gives credit to and which is the lowest nominal OC of the last 12 months, provides more protection than the revised 17.0% 'AAA' breakeven OC for the programme. The latter supports a 'AA+' tested rating on a probability of default basis and a one-notch recovery uplift to 'AAA'. The Stable Outlook on the covered bonds' rating reflects that on Danske and a three-notch buffer against an issuer downgrade, due to the different uplift factors above the bank's IDR. The reduction in Fitch 'AAA' breakeven OC for this programme, to 17.0% from 23.5%, is driven by a lower credit loss component, of 15.1% in the 'AA+' stress scenario tested for timely payment. This is mainly driven by the diminished industry correlation that Fitch now applied in its asset model to reflect that most borrowers included in the cover pool are individuals whose total income is only partially derived from the rented properties backing the loans. In assessing the cover pool's probability of default, Fitch has assumed a three-year longer maturity for the interest-only loans (26.1%) As at 31 March 2017, Danske's cover pool C consisted of 70.8% Swedish and 29.2% Norwegian commercial real estate mortgages compared with 68.4% and 31.6%, respectively, in March 2016. Fitch calculated a 'AAA' weighted average (WA) default rate and 'AAA' WA recovery rate of 27.0% and 37.8%, respectively. The cash flow valuation component leads to a lower 'AAA' breakeven OC by 0.6% due to positive excess spread on the underlying assets versus the covered bonds in Fitch's worst case high prepayment scenario. The asset disposal loss increases the breakeven OC by 0.8%, reflecting low maturity mismatches. The weighted average life (WAL) of the assets modelled by Fitch is 3.6 years while the WAL of the covered bonds is 2.7 years. The programme's two-notch IDR uplift reflects that covered bonds in Denmark are exempt from bail-in, Fitch's assessment that the risk of under-collateralisation at the point of resolution is sufficiently low, and that a resolution of Danske, should it happen, would not result in the direct enforcement of the recourse against the cover pool. Fitch's PCU for Danske's C programme is five notches, rather than the standard six for mortgage covered bonds with a 12-month principal maturity extension and three-month protection for interest payment. This is due to the lack of formal provisions to find a refinancing solution without delay in the event of a maturity extension. The recovery uplift for this programme is capped at one notch due to the presence of significant pre-swap FX mismatches between cover assets and liabilities. The FX covered bonds are fully hedged until maturity (including the extension period). However, upon a covered bonds' default, recoveries from SEK- and NOK-denominated assets, which have a longer WAL than the covered bonds, could expose holders of non SEK- and non NOK-denominated bonds to FX risk. RATING SENSITIVITIES The 'AAA' rating of Danske Bank AS's cover pool C mortgage covered bonds would be vulnerable to a downgrade if any of the following occurs: (i) Danske's Long-Term Issuer Default Rating (IDR) was downgraded by four notches to 'BBB-' or below; or (ii) the payment continuity uplift was reduced to one notch or less; or (iii) the level of overcollateralisation (OC) Fitch gives credit to in its analysis fell below the 'AAA' breakeven OC for the programme of 17.0%. If the actual OC was reduced to the legal minimum of 0%, the covered bonds would be downgraded to 'AA', three notches above the bank's IDR. The Fitch breakeven OC for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time. Contact: Primary Analyst Andrea Gallina Analyst +44 20 3530 1251 30 North Colonnade London E14 5GN Secondary Analyst Anne-France Chane Analyst +44 20 3530 1491 Committee Chairperson Carmen Munoz Senior Director +34 93 323 8408 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Covered Bonds Rating Criteria (pub. 26 Oct 2016) here Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016) here Criteria for the Analysis of Commercial Real Estate Loans Securing Covered Bonds (pub. 17 Nov 2016) here Fitch's Cover Assets Refinancing Spread Level (RSL) Assumptions - Excel file (pub. 20 Jan 2017) here Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 Feb 2017) here Fitch’s Foreign-Currency Stress Assumptions for Residual Foreign-Exchange Exposures in Covered Bonds and Structured Finance – Excel File (pub. 26 Oct 2016) here Global Bank Rating Criteria (pub. 25 Nov 2016) here SME Balance Sheet Securitisation Rating Criteria (pub. 03 Mar 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017) here Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017) here Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below