Standard & Poor’s has assigned a AAA rating to Nykredit Realkredit covered bonds issued out of a new capital centre (H) that was set up for the refinancing of adjustable rate mortgages (ARMs) and floating rate mortgages.

The rating agency said it expects most of the covered bonds issued out of capital centre H to come with a one year maturity, although Nykredit offers maturities of up to 10 years. The AAA rating is on stable outlook.

“Most loans in Capital Centre H consist of loans refinanced from the current Capital Centre E,” said S&P. “As Nykredit Realkredit intends to remove ARM and floating-rate mortgages from their existing capital centres, we expect that Capital Centre H’s portfolio will eventually reflect the general credit and cash flow characteristics of Nykredit Realkredit’s current total ARM and floating rate mortgages portfolio.

S&P said that Capital Centre H was the first centre set up solely to finance ARMs in Denmark, and that is has not observed any significant different level of refinancing cost for this type of mortgages.

“Should we observe an increase in funding costs of ARMs compared with other mortgage products, we may reflect the different investor perception by adjusting our refinancing assumptions accordingly,” it said.

The rating agency has deemed the asset-liability mismatch (ALMM) risk of the programme to be “low”, and assigned the covered bonds to category 1 under its programme categorisation framework.

The assignment of S&P’s rating completes the rating process of covered bond issuance out of the new centre, with Moody’s at the beginning of November having assigned a Aa1 rating.