Realkredit Danmark obtained a rating for senior secured bonds issued under Section 33e of Danish legislation today (Tuesday), with S&P assigning them a A- rating, and an official at the issuer told The Covered Bond Report why it turned to the instrument and prefers not to use the term “covered bond” in connection with the asset class. Meanwhile, Realkredit Danmark kicked off summer FRN auctions this morning.

Realkredit Danmark in March became the fourth mortgage credit institution to issue what are commonly referred to as junior covered bonds (JCBs), but only received a rating today.

Standard & Poor’s assigned the bonds, which are issued out of capital centres S and T, a A- rating, on stable outlook. This is in line with the issuer rating, with S&P noting that it does not “envision any additional rating uplift from that of the senior unsecured debt rating on the issuer’s parent bank as a result of the characteristics of these bonds”.

The rating action refers to Section 33e issuance, a categorisation that the issuer also prefers over the junior covered bonds label that has been used by the biggest issuer, Nykredit Realkredit, as well as other issuers and market participants.

Klaus Kristiansen, executive vice president at Realkredit Danmark, told The Covered Bond Report that the issuer is deliberately refraining from using the term “covered bond” because it feels that this does not accurately reflect the characteristics of the instrument, which does not provide for a first ranking claim on a cover pool.

“It is more comparable to a senior secured instrument, and this is also what the rating reflects,” he said. “In addition the term junior covered bond gives the impression that we have embarked on tranched issuance, which we haven’t.

“This is why we refer to Section 33e bonds instead.”

S&P said that Section 33e bonds have a junior ranking claim on the cover pool assets from the capital centre under which they are issued, and that if the issuer defaults, payments on the section 33e bonds from Realkredit Danmark’s Capital Centres S and T are deferred until all respective senior covered bonds have redeemed, unless the bankruptcy administrator is confident that the senior covered bonds can be repaid.

Realkredit Danmark made its debut with the instrument in March without the issuance being rated but had planned to obtain a rating all along, according to Kristiansen.

He said that Realkredit Danmark turned to the instrument to replace funding previously provided by its parent, Danske Bank, until that credit line was closed in November 2011.

“We felt it would be more efficient for us to go directly to the market instead and in doing so we could also be sure of getting the right price, so to speak,” he said. “The other reason was that we prepaid state hybrid capital of Dkr2bn that we had until May this year, and redeeming that facility more or less covered the cost of issuing the Dkr20bn (Eu2.69bn) of section 33e bonds.”

Issuance of the instrument is also intended to build a buffer in the event that house prices continue to decline, added Kristiansen, and to raise proceeds that can go toward supporting overcollateralisation.

S&P yesterday (Monday) put on Credit Watch positive another Danish mortgage lender, DLR Kredit, which it started rating on 31 May, at BBB+, stable outlook, and the issuer said that it is in “continued dialogue” with S&P regarding rating of its covered bonds in DLR’s capital centres, Capital Centre B and the General Capital Centre.

Moody’s rates DLR Ba1, and its covered bonds A2.

Realkredit Danmark this morning kicked off summer auctions of floating rate notes by selling Dkr29.3bn of three year FRN mortgage covered bonds issued out of capital centre T, with a bid-to-cover of 1.38. The mortgage credit institution is this afternoon also auctioning Eu530m of one year euro floating rate SDROs.

Nordea Kredit joins in the summer FRN auctions tomorrow, when it will sell Dkr18.8bn of three year bonds out of capital centre 2. Danske Bank analysts said that the new issues will fund the refinancing of Realkredit Danmark and Nordea Kredit FRNs maturing in July.