Moody’s yesterday (Thursday) put the Aaa rating of covered bonds issued out of Realkredit Danmark’s capital centre S on review for downgrade, saying that it had expected the issuer to take action to resolve a collateral shortfall – although the Danish bank said last month that it would no longer work with the rating agency.

Moody’s said that its rating action followed its assessment that the collateral backing the covered bonds was not commensurate with a Aaa rating. It said that as of the last reporting date, the level of collateral was consistent with only a Aa2 rating.

“Realkredit has recently announced that it could add additional collateral to the cover pool, funded either through the issuance of junior covered bonds or through a loan from Danske Bank [its parent],” said the rating agency. “As of today, the addition of collateral has not been completed and the exact terms under which the collateral would be provided and maintained have not been finalised.

“During the review period, Moody’s will consider the issuer’s latest proposal to add additional collateral to the cover pool, which aims to reduce the expected losses on the covered bonds to a level consistent with a Aaa rating. In making its assessment Moody’s will take into account all information provided by the issuer, but expects to conclude its review within a reasonable timeframe.”

The rating agency said that should it withdraw the rating, it would “first position the rating at an appropriate level” and make this public.