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Fitch Affirms Sparebank 1 Boligkreditt's Covered Bonds at 'AAA'; Outlook Stable
August 14, 2013 / 4:23 PM / 4 years ago

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

(The following statement was released by the rating agency) LONDON, August 14 (Fitch) Fitch Ratings has affirmed Sparebank 1 Boligkreditt's covered bonds at 'AAA' with a Stable Outlook. Fitch performed a full review of the programme, and notably incorporated its update criteria assumptions for Norway ('EMEA Criteria Addendum - Norway', dated 29 April 2013 at KEY RATING DRIVERS The covered bonds' rating is based on Sparebank 1 Boligkreditt's (S1B: 'A-'/Stable/ 'F2') Long-Term Issuer Default Rating (IDR) of 'A-' and a D-Cap of 4 (moderate risk), the combination of which enables the mortgage covered bonds to be rated up to 'AA' on a probability of default (PD) basis and 'AAA' after factoring in stressed recoveries on the covered bonds. The rating also reflects the overcollateralisation (OC) that Fitch gives credit to (10.8%), which is above the 'AAA' breakeven OC. Following the review, the D-Cap of 4 (moderate risk) and the breakeven OC of 9.60% remain unchanged. The expected loss on the cover pool has increased to 1.91% from 1.38% in a 'AA' rating scenario. However, this has been offset by (1) lower maturity mismatches between the assets in the cover pool and the outstanding covered bonds and (2) increased margins on the assets that were taken into account in the cash-flow modelling. The D-Cap of 4 is driven by the moderate risk assessment of the liquidity gap and systemic risk and systemic alternative management risk components, which are the weakest of the D-Cap components. The cover pool specific alternative management component and the privileged derivatives are assessed as low risk from a discontinuity point of view and the asset segregation as very low. The 12-month extendible maturity on the covered bonds and the three-month interest reserve fund drive the liquidity gap and systemic risk assessment. The systemic alternative management reflects the challenges faced by an alternative manager to make timely payments on the bonds post issuer or parent company's default. Regarding the cover pool-specific alternative management, Fitch has a positive view of S1B's processes, data delivery and the market systems used that will likely lead to a less difficult transition to an alternative manager than internally-developed systems. The expected loss increase is driven by lower calculated recovery rates on the pool due to more conservative market value decline (MVD) assumptions, implemented as part of the recently published 'EMEA Criteria Addendum - Norway', dated 29 April 2013 at The weighted average foreclosure frequency (WAFF) is now 8.31% and the weighted average recovery rate (WARR) is 77.00% in 'AA' scenario. The agency takes into account the lowest OC of the past year (excluding intra-group exposures) in its analysis, reflecting the issuer's 'F2' Short-term IDR. The level of OC Fitch relies upon supports 'AA' rating on a probability of default (PD) basis and 'AAA' rating considering recoveries given default. Fitch has compared the cash flows from the cover pool in a wind-down situation, subject to stressed defaults and losses and under the management of a third party, to the payments due under the covered bonds. The cover assets have a weighted average life of 16.3 years, assuming no prepayments, and the covered bonds of 4.5 years. Given the dynamic nature of the programme, the composition and credit quality of the cover pool may change over time. 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 issuances. Therefore it cannot be assumed to remain stable over time. RATING SENSITVITIES The 'AAA' rating would be vulnerable to downgrade if any of the following occurred: (i) the IDR was downgraded by 1 notch to 'BBB+' or lower; or (ii) the D-Cap decreased by 1 category to 3 (moderate high risk) or worse; or (iii) the overcollateralization (OC) that Fitch takes into account in its analysis decreased below Fitch's 'AAA' breakeven OC of 9.60%. The Outlook on the covered bonds' rating is Stable, which reflects the Stable Outlook on Sparebank 1 IDR and the Norwegian mortgage sector (see "2013 Outlook: European Structured Finance" dated 19 December 2012 at Contact: Primary Analyst Despoina Pilidou Analyst +44 20 3530 1466 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Lukas Platzer Analyst +44 20 3530 1589 Committee Chairperson Cosme de Montpellier Senior Director +44 20 3530 1407 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email:; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available at Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 Sept 2012, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013, 'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' dated 3 June 2013, 'EMEA Residential Mortgage Loss Criteria', dated 6 June 2013 and 'EMEA Criteria Addendum - Norway' dated 29 April 2012 are available on Applicable Criteria and Related Research: EMEA Criteria Addendum – Norway here Covered Bonds Rating Criteria - Amended here Counterparty Criteria for Structured Finance and Covered Bonds here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here EMEA Residential Mortgage Loss Criteria 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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