Norway’s OBOS-banken is set to issue a debut Norwegian krone covered bond through a new wholly-owned covered bond issuer in the third quarter, having yesterday (Wednesday) received a provisional covered bond rating from Moody’s, as it negotiates a split from issuer Eika Boligkreditt.

OBOS-banken – a part of OBOS, Norway’s largest housing co-operative – has previously financed parts of its mortgage loan portfolio through covered bond issuer Eika Boligkreditt, and is the largest owner of the latter.

In January, OBOS-banken announced its intentions to establish its own wholly-owned residential mortgage company – OBOS Boligkreditt – for the issuance of covered bonds. As a result, OBOS-banken’s distribution agreement with Eika Boligkreditt was terminated, effective as of February 2017.

Mats Benserud, business controller at OBOS-banken and managing director of OBOS Boligkreditt, said that OBOS decided to establish a fully owned covered bond company after substantial growth in its loan portfolios.

“It’s all based on financial calculations, really,” he said. “We have had significant loan growth over the last three years and have reached such a size that gives us the opportunity to establish our own covered bond company.

“We expect that our covered bonds will be competitively priced and that we can do better financially with our own company than through Eika Boligkreditt.”

Benserud said that further information regarding when exactly OBOS Boligkreditt will be fully established will be given in OBOS’s second quarter results on 16 August, and that formal confirmations are being awaited from the Norwegian FSA (Finanstilsynet).

“However, our ambition is to do the first issue during the third quarter,” he said.

Benserud added that OBOS Boligkreditt’s initial issuance will be denominated in Norwegian kroner, and said the first one or two deals will likely be floating rate notes of around Nkr2bn (Eu212m).

He said that Norwegian kronor covered bonds need to be at least Nkr2bn in size to qualify for Level 2A of LCR, at a regulatory exchange rate set by Finanstilsynet.

“There are no plans for euro issuance as of now,” Benserud added. “We believe the domestic market is large enough to supply us with what we need within a medium term horizon.

“What happens after that, we will have to see.”

Benserud said the terms of the termination of the distribution agreement with Eika are still being negotiated, but added that the existing mortgage loan portfolio currently financed through Eika will remain with the issuer.

In its first quarter report, Eika also said it considers it very likely that the two parties will reach such an agreement, which it said means that OBOS-banken will maintain a substantial residential mortgage portfolio and financing in Eika during the coming years. As of 31 March, OBOS-banken’s residential mortgage portfolio and financing in Eika totalled Nkr7.9bn.

Odd-Arne Pedersen, CFO at Eika Boligkreditt, said the split with OBOS is expected to have a minor impact on Eika’s issuance, noting that Eika currently has Eu8.1bn (Nkr76.5bn) covered bonds outstanding.

“Our assumption is that the exit of OBOS will have minor impact on our future covered bond issues,” he said.

Moody’s yesterday assigned a provisional Aaa rating to the covered bonds to be issued by OBOS Boligkreditt.

The total value of the assets included in the cover pool of OBOS Boligkreditt is approximately Nkr5.4bn, comprising Nkr2.8bn of residential loans to individuals and Nkr2.6bn of loans to housing co-operatives, according to Moody’s. The weighted-average loan-to-value (LTV) ratio is 50.4%, on an unindexed basis, for loans to individuals and 30.6% for loans to housing co-operatives.

Moody’s said the overcollateralisation (OC) in the cover pool will depend on the size of the first series, and that the issuer is expected to provide 5% on a “committed” basis. The minimum OC level consistent with the Aaa rating is 6%. The collateral score for the cover pool is 5.1% and the exposure to market risk 6.4%.

The Timely Payment Indicator (TPI) is “high”, and Moody’s noted the TPI framework does not constrain the rating.

OBOS banken is rated Baa1 by Moody’s.

Photo: OBOS