Standard & Poor’s has assigned a AAA rating to covered bonds issued by Realkredit Danmark out of Capital Centre T, a new capital centre set up primarily to finance adjustable rate mortgage (ARM) loans.

Realkredit Danmark covered bonds used to be rated by Moody’s and S&P, but the mortgage credit institution terminated its collaboration with Moody’s in the summer of 2011 because of fundamental disagreements with the rating agency over its approach to ARM loans that back some covered bonds.

Capital Centre T is a new capital centre that Realkredit Danmark at that time said it would establish for the financing of ARM loans via issuance of særlight dækkede realkreditobligationer (SDROs).

S&P yesterday assigned a AAA rating to Capital Centre T SDROs, on stable outlook. It has classified Capital Centre T as a Category 1 covered bond programme and assessed the asset-liability mismatch (ALMM) as “low”, which allows the covered bonds to be rated up to seven notches higher than the issuer.

“Comparing our assessment of the target credit enhancement with the available credit enhancement, our analysis indicates that the cover pool can fully support the potential rating uplift for our AAA rating on these legislation-enabled mortgage covered bonds,” said S&P.

It said that the stable outlook reflects its view that adverse changes to the issuer credit rating or to the ALMM measure would not automatically lead to the covered bond rating changing.

“We also consider that Realkredit Danmark has the ability and willingness to manage the covered bonds at conditions commensurate with the ratings that we have assigned,” it added.