Moody’s changed the outlook on Nykredit Realkredit’s rating from negative to stable on Friday, citing a stabilising operating environment in Denmark and a new covered bond bill that removes a “historically significant negative credit driver” for the Nykredit group.

Moody’s affirmed the long term ratings of Nykredit Realkredit and its subsidiary Nykredit Bank at Baa2, noting the group’s strong franchise as well as the “likely loss of a major distributor” due to the planned acquisition of BRFkredit, a competitor, by Jyske Bank.

The rating agency changed the outlook on Nykredit Realkredit’s rating from negative to stable because it considers that the operating environment in Denmark, while still challenging, is stabilising.

Another consideration fuelling the outlook change is a new law passed by the Danish parliament on 11 March that provides for the conditional forced maturity extension of certain Danish covered bonds in defined stressed circumstances.

“The Bill on Mortgage Credit loans and Mortgage-Credit bonds […] in Moody’s view introduces a framework for addressing a failed covered bond auction for adjustable rate mortgages, and mitigate refinancing risk for Danish financial institutions arising from short term market disruption,” said the rating agency. “With more than 40% of Nykredit Realkredit group’s total funding relating to adjustable rate mortgages, the new bill removes a historically significant negative credit driver for the group.”

However, Moody’s noted that there is some implementation risk associated with the new bill until all outstanding short term mortgage bonds are rolled over into bonds covered by the new bill.