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Sparebanken Sør covered bond maturity payment delay ‘technical’

Payment on a Nkr30m (Eu3.66m) maturing covered bond of Sør Boligkreditt, the issuer of Norway’s Sparebanken Sør, has been delayed by three days because an amendment to the structure three years ago was not correctly registered in a payment system, according to an official at the issuer.

Sparebanken Sør imageThe covered bond was originally issued by Pluss Boligkreditt, which took over Sør Boligkreditt when Sparebanken Sør merged with Sparebanken Pluss in January, and the issuer was renamed Sør Boligkreditt.

The Nkr30m floating rate covered bond was issued in March 2009 – originally with a face value of Nkr1bn as part of a Norges Bank swap scheme – and was initially structured as having a maturity date of 28 September 2015 with a first call on 26 September 2014. In September 2011 the structure was amended so that the maturity date became 26 September 2014 (last Friday), with the bond having a one year extension period to 28 September 2015 – making the structure more typical of soft bullet covered bonds.

However, according to Marianne Lofthus, Sør Boligkreditt CEO, the change to the maturity date was not registered by the custodian in the VPS system in Norway used for payments on the bond, meaning that when the maturity payment was due on Friday, it was not made.

The bond trustee, Nordic Trustee (formerly Norsk Tillitsmann), gave notice of the delayed payment, citing “technical circumstances” and saying that payment would be made on 29 September (today) and would include three days’ late payment interest.

“It was related to two investors who didn’t get their payment on time because of this technical error,” said Lofthus. “Of course we were ready to pay – we had already sent the money.

“It is not related to the bonds or the issuer,” she added. “The delay in payment is to an operational error only.”

Florian Hillenbrand, senior credit analyst at UniCredit, said that he did not consider the incident to be a real problem in a way that regulators have to take action.

“It’s almost a statistical certainty that amid the zillions of bonds outstanding once in a while something technical goes wrong,” he said. “For sure this is nothing particularly appealing, but the decisive aspect in judging a missed payment is the continuation prognosis – and this is completely unaffected by what has happened.”

Another covered bond analyst said that the incident highlighted operational risk. He suggested that as operational risk had been shown to be a factor for the covered bond programme Moody’s might want to review its Timely Payment Indicator (TPI) for the programme.

Pluss Boligkreditt covered bonds are rated Aaa by Moody’s with a TPI of “high”.

Sparebanken Sør is the fifth largest bank in Norway, according to the bank.