Nykredit today (Tuesday) announced that it will by the end of the month have opened a new capital centre for the issuance of covered bonds funding loans subject to refinancing, and told The Covered Bond Report that it could even begin issuance before ratings have been finalised.

The Danish bank is taking the action in response to harsher assessment of Denmark’s adjustable rate mortgages (ARMs) by Moody’s.

The move was first communicated on 21 June, when Nykredit announced a five point operational plan in a statement that flagged changes to Moody’s assessment of the refinancing risk related to adjustable rate mortgages (click here for more).

Nykredit today said that it and Totalkredit are beginning to implement the operational changes.

“The first initiative is to concentrate loans subject to refinancing in a separate capital centre,” said Nykredit.

The new capital centre (H) will be for the issuance of bonds “funding loans subject to refinancing” and will be open from the end of August, it said in a statement.

“The new capital centre will be used for the purpose of the next refinancing on 1 October when existing mortgage loans in Capital Centre E and private residential mortgage loans in Capital Centre D will be refinanced to Capital Centre H,” it added.

On 18 July Nykredit provisionally announced plans to hold auctions from September 5-20.

Henrik Hjortshøj-Nielsen, executive vice president, group treasury at Nykredit, told The Covered Bond Report that the institution wanted to give a heads-up to investors about the forthcoming changes.

“We have been receiving questions from investors about the timetable for the creation of the new capital centre, and wanted to give them notice that we will open it by the end of August,” he said.

ISIN codes are expected to be available in around two weeks, after which Nykredit can begin granting adjustable rate mortgages linked to the new capital centre, said Hjortshøj-Nielsen.

“We also wanted to inform investors that there is a chance that the rating agencies will not yet have assigned a rating before we start issuing bonds out of the new capital centre, although we hope that they will be ready,” he said.

Covered bonds issued out of the new capital centre are due to be rated by Moody’s and Standard & Poor’s, with Nykredit stating that it has asked the rating agencies to assign ratings “as soon as possible”.

“A positive dialogue is ongoing, but the timing of the rating is still unknown,” said the statement.

Final terms of the individual bonds and expected volumes and terms for the October refinancing auctions will be published after a meeting of the Nykredit Realkredit board of directors on 18 August.