Today, Nordic Credit Rating (NCR) said it had assigned a 'AAA' issue rating to covered bonds issued by Sweden-based mortgage company Danske Hypotek AB (publ) (DH).
At the same time. NCR assigned the mortgage lender a 'A' long-term issuer rating and an 'N-1+' short-term issuer rating. The outlook on the long-term rating is negative, mainly due to concerns about the impact of the coronavirus pandemic.
"The rating on the covered bonds is ultimately based on the issuer rating, the strength and importance of Sweden's covered bond regulations and the high likelihood that Danske Hypotek would be part of a resolution," said NCR credit analyst Sean Cotten. "Our analysis also indicates additional support available to bondholders, in the unlikely event that the pool becomes a standalone entity," said Mr. Cotten.
The 'A' long-term issuer rating on DH reflects the current Swedish operating environment for mortgage lenders as well as the company's strong risk-adjusted earnings, very low historical and projected loss performance and low credit risk profile. It also considers DH's importance to Danske Bank's long-term strategy in its core Swedish market.
The negative outlook on the long-term issuer rating reflects NCR's view that DH faces an uncertain economic impact from COVID-19 which could primarily affect the company's operating environment, earnings, and collateral coverage. In addition, a material deterioration for the Danske Bank group, which is more exposed to at-risk corporate segments than DH, could affect our credit assessment of the parent and limit our rating on the mortgage company. The outlook could be revised to stable if there are clear signs of an economic recovery.
Despite the negative outlook, NCR does not anticipate a multiple-notch downgrade of DH and expects the covered bond ratings to remain stable. This reflects its view that DH and the Danske Bank group will maintain their status as systemically important financial institutions with a very high likelihood of resolution which would be expected to exclude the bail in of covered bonds.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018, NCR's Rating Principles published on 16 Sep. 2019 and NCR's Covered Bond Rating Methodology published on 5 Jul. 2019. For the full regulatory disclaimer please see the rating report.
NCR - Danske_Hypotek_AB_publ - Initial Rating Report 30 Apr. 2020.pdf (1.6 MB) Danske Hypotek AB (publ) A Negative Financial N-1+ Off On