Fitch Affirms Sparebank 1 Boligkreditt's Covered Bond Programme at 'AAA'; Outlook Stable

Wed Jun 25, 2014 11:57am EDT

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(The following statement was released by the rating agency) LONDON, June 25 (Fitch) Fitch Ratings has affirmed Sparebank 1 Boligkreditt's (S1B, A-/Stable/F2) NOK155bn equivalent of outstanding mortgage covered bonds at 'AAA' with a Stable Outlook, following a review of the programme. KEY RATING DRIVERS S1B's covered bonds' rating is based on S1B's Long-term Issuer Default Rating (IDR) of 'A-', an unchanged Discontinuity Cap (D-Cap) of 4 (moderate risk), and the overcollateralisation (OC) between the cover pool and the covered bonds. The 'AAA' breakeven OC for the programme is 8.0%, based on a 'AA' probability of default (PD) rating on the covered bonds and recoveries exceeding 91%, which support a two-notch uplift to 'AAA'. The OC Fitch relies upon is 10.0%, which was the lowest observed OC over the past 12 months. The 'AAA' breakeven OC for S1B covered bonds rating has decreased to 8.0% from 9.6% previously, mainly due to increased margins on the Norwegian mortgages in the pool. The agency does not give full credit to the asset margin due to the high volatility of this component. The 'AAA' breakeven OC also includes an adjustment for commingling risk because the collection account bank (Sparebank 1 SR-Bank, A-/Stable/F2) is rated below Fitch's 'A'/'F1' rating threshold for 'AAA' rated covered bonds. The main break-even OC drivers are the expected credit loss on the pool and the high negative carry costs, resulting from Fitch's reinvestment assumptions. The 'AAA' expected loss for the programme is stable at 4.0%, which represents the agency's expected credit loss floor for a residential mortgage pool in a 'AAA' rating scenario. All mortgages in S1B's cover pool bear a variable rate and are secured by mostly owner-occupied Norwegian residential properties. Pool characteristics have remained unchanged since the last programme review. As of end-March 2014, the pool consisted of 97.2% residential mortgages and 2.8% substitute assets in the form of liquid securities and cash. Fitch does not give full credit to the cash accumulated for the benefit of the programme because some of it is held with a counterparty (Sparebank 1 SR-Bank) rated below 'A'/'F1'. The OC level of 10.0% upon which the agency relies excludes such intra-group exposures. The OC level (excl. intra-group exposures) was 11.2%, as of end-March 2014. RATING SENSITIVITIES The 'AAA' rating for the programme would be vulnerable to a downgrade if any of the following occurs: (i) the IDR is downgraded by one notch or more to 'BBB+' or lower; (ii) the D-Cap falls by one category or more; or (iii) the OC Fitch gives credit to in its analysis drops below Fitch's 'AAA' breakeven level of 8.0%. The Fitch breakeven OC for the covered bond rating will be affected, amongst 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. More details on the portfolio and Fitch's analysis will be available in a full rating report, which will shortly be available at www.fitchratings.com. Contact: Primary Analyst Iva Detelinova Analyst +44 20 3530 1663 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Ieva Snejkova, CFA Director +44 20 3530 1276 Committee Chairperson Cosme de Montpellier Senior Director +44 20 3530 1407 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com Applicable criteria, 'EMEA Residential Mortgage Loss Criteria', dated 28 May 2014; 'Covered Bonds Rating Criteria', dated 10 March 2014; 'EMEA Criteria Addendum - Norway', dated 10 March 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2014; 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum', dated 4 February 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: EMEA Residential Mortgage Loss Criteria here Covered Bonds Rating Criteria here Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress Addendum here EMEA Criteria Addendum - Norway here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here Additional Disclosure Solicitation Status 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 WEBSITE '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. 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.

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