Sweden’s Landshypotek is dropping Moody’s from the line-up of agencies rating its unsecured borrowing to focus on its relationship with Fitch and Standard & Poor’s, with the issuer aiming to have its covered bonds rated by a second rating agency, an official at the financial institution told The Covered Bond Report.

Landshypotek provides funding for agriculture and farming in Sweden

Landshypotek, a mutual that lends to farm and forest owners, on Friday announced that it had decided to discontinue its partnership with Moody’s, which alongside Fitch and S&P has rated Landshypotek’s unsecured funding.

Björn Ordell, finance and accounting manager at Landshypotek, told The Covered Bond Report that the mutual has been rated by three rating agencies for several years, but that during this period it had always strived for an “optimum mix” of two ratings of the issuer and two ratings of its covered bonds.

Landshypotek is 80% funded by covered bonds, he added, meaning that the covered bond rating is the most important for the issuer. In its latest interim report Landshypotek noted that unsecured funding comprises a small percentage of total borrowing, and that it believes that ratings from two agencies are sufficient.

Moody’s downgraded Landshypotek from A3 to Baa2 as part of rating actions on five Swedish banking groups in May, while Fitch and S&P rate the issuer A+ and A, respectively.

Ordell said that Landshypotek decided to drop Moody’s because it felt that Fitch and S&P carried out a more thorough analysis of the issuer and agriculture and forestry lending in Sweden, with Moody’s rating less transparent and harder to understand.

Ordell said that with Landshypotek having dropped Moody’s from its unsecured ratings the next step for the issuer is to obtain a second rating of its covered bonds.

The issuer’s covered bonds are currently rated only by S&P, at AAA, with Landshypotek yet to decide which other rating agency should rate its covered bonds.

“It’s quite a long process to add another rating,” he said, “and it will be at least one year from now before we are at that stage.”

Outstanding Landshypotek covered bonds are 75% Swedish kronor denominated, with Norwegian kroner and Swiss franc issuance making up the bulk of its overseas covered bond funding, according to Ordell.