Fitch Upgrades Sandnes Sparebank Boligkreditt's Covered Bonds to 'AA'; Outlook Stable

Rogaland Sparebank

25/11/2013 12:42

(The following statement was released by the rating agency)

LONDON, November 25 (Fitch) Fitch Ratings has upgraded Sandnes Sparebank 
Boligkreditt AS's (SSBB) covered bonds to 'AA' from 'AA-'. The Outlook is 
Stable. The upgrade reflects recent changes in the characteristics of the cover 
pool and a revision of the D-Cap for the programme.

KEY RATING DRIVERS

The D-Cap was revised to '4' (moderate risk) from '3' (moderate high risk) 
following changes in the pool's characteristics. 

The previously assigned D-Cap of '3' was driven solely by the liquidity gap & 
systemic risk component, reflecting Fitch's view on the liquidity of the cover 
pool and the 12- month extendible feature on the bonds. The pool showed 
geographical concentration, a high proportion of flexible loans and non-standard 
features for the flexible loans. Notably, most flexible loan contracts did not 
have a maturity date, and Fitch assumed that these loans would be less palatable 
to potential buyers of the pool following a default of the issuer. 

However, all flexible loans in the pool now have a maturity date 15 years from 
the origination date, following an amendment to the contract which was notified 
to and agreed by borrowers. Sandnes Sparebank has also discontinued offering 
flexible loans without maturity. In addition, the proportion of flexible loans 
in the cover pool has significantly decreased to 42% at end-September 2013 from 
56% (based on drawn amount) at end-March 2013. 

Fitch sees the above changes as positive on the liquidity of the cover pool and 
has reflected this in a moderate risk assessment for the liquidity gap & 
systemic risk component of the D-Cap, compared with moderate high previously. As 
this component was the weakest of the D-Cap components, the D-Cap now stands at 
'4' (moderate risk), and is now jointly driven by the liquidity gap & systemic 
risk component and the systemic alternative management component.

The covered bonds' rating is based on Sandnes Sparebank's Long-Term Issuer 
Default Rating (IDR) of 'BBB'/Stable/'F3', a D-Cap of '4' (moderate risk) and an 
updated 'AA' break-even over-collateralisation (OC) of 11.0%, the combination of 
which enables the mortgage covered bonds to reach a maximum rating of 'A+' on a 
probability of default (PD) basis and 'AA' after factoring in stressed 
recoveries on the covered bonds. 

The 'AA' break-even OC of 11.0% is down from the previous 'AA-' break-even OC of 
12.0%, mainly driven by lower asset and liability maturity mismatches from the 
combined effect of lower weighted average life (WAL) for the assets in the pool 
and higher WAL for the bonds. Sandnes recently redeemed part of the covered 
bonds maturing in June 2015, and issued a five-year covered bond, which 
increased the WA life of the outstanding covered bonds to 2.6 years from two 
years. On the asset side, the WAL of the mortgages in the pool decreased to 11.8 
years from 20.8 years (as calculated by Fitch).

RATING SENSITVITIES

The 'AA' rating would be vulnerable to downgrade if any of the following occurs: 
(i) the IDR is downgraded by one notch to 'BBB-' or more; or (ii) the D-Cap 
decreases by one category to 3 (moderate high risk) or worse; or (iii) the OC 
that Fitch takes into account in its analysis decreases below Fitch's 'AA' 
breakeven OC of 11.0%. 

If the OC that Fitch considers in its analysis drops to the legal requirement of 
0%, the covered bonds rating would be downgraded to 'A-', reflecting outstanding 
recoveries and thus a two-notch rating uplift above Sandnes Sparebank's IDR.

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, 'Covered Bonds Rating Criteria', dated 04 September 2013, 
'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 2013 are 
available on www.fitchratings.com.

Applicable Criteria and Related Research: 

Covered Bonds Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717321

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709665

EMEA Residential Mortgage Loss Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709915

EMEA Criteria Addendum – Norway

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704081

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809333

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