Wednesday, December 7 2022

Paris, September 20, 2022 — Moody’s Investors Service (“Moody’s”) today assigned a final long-term rating of Aaa to mortgage covered bonds issued under program number 2 by Nordea Mortgage Bank Plc (“the issuer”, unrated), which are governed by the new Finnish Covered Bond Act.

RATINGS RATIONALE

A covered bond benefits from (1) the promise of the issuer to pay interest and principal on the bonds; and (2) following a CB anchor event, the economic benefit of a collateral pool (the hedging pool). The ratings therefore reflect the following factors:

(1) Nordea Bank Abp’s credit strength (deposits/senior unsecured Aa3 stable; adjusted benchmark credit rating a3; CR rating Aa2(cr)) and a CB anchor of CR rating plus 1 notch. Nordea Bank Abp provides a committed liquidity line to the issuer to ensure that the issuer has sufficient funds to meet its obligations under the covered bonds.

(2) Following a CB anchor event, cover pool value. The stressed level of losses on cover pool assets following a CB anchor event (cover pool loss) for this operation is 9.34%.

Moody’s considered the following factors in its analysis of the value of the cover pool:

a) The credit quality of the assets backing the covered bonds. The mortgage covered bonds are mainly backed by Finnish residential and multi-family mortgages. The collateral score for the cover pool is 5%.

b) The support provided by the new Finnish legal framework for covered bonds.

c) Exposure to market risk, which is 5.99% for this cover pool.

d) Overcollateralization (OC) in the cover pool is 27.6%, of which the issuer provides 2.0% on a “committed” basis (see key assumptions/scoring factors below).

The TPI assigned to this trade is Likely-High. Moody’s TPI framework does not limit rating.

Currently, the total value of assets included in the cover pool is approximately €1.28 billion, comprising 15,843 residential mortgages, 447 multi-family mortgages and substitute assets. Residential mortgages have a weighted average seasoning (WA) of 60 months and a loan-to-value (LTV) ratio WA of 56.4%. Multi-Family Mortgages have a WA seasoning of 68 months and a WA LTV ratio of 18.5%.

KEY ASSUMPTIONS/SCORING FACTORS

Moody’s determines covered bond ratings using a two-step process: an expected loss analysis and a TPI framework analysis.

EXPECTED LOSS: Moody’s uses its covered bond model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines the expected loss as (1) a function of the probability that the issuer ceases to make payments under the covered bonds (such cessation, a CB anchor event); and (2) the estimated losses that will accrue to covered bondholders in the event of a CB Anchor Event. We express the probability of a CB anchor event as a point on our alphanumeric rating scale (i.e. CB anchor), which is typically one notch higher than the CR rating of the issuer.

The CB anchor for this program is Aa1, which is Nordea Bank Abp’s CR rating plus 1 notch.

The cover pool losses for Nordea Mortgage Bank Plc – Mortgage Covered Bonds Program 2 are 9.34%. This is an estimate of the losses that Moody’s currently models following a CB peg event. Moody’s splits cover pool losses between market risk of 5.99% and collateral risk of 3.35%. Market risk measures losses resulting from refinancing risk and risks related to interest rate and currency mismatches (these losses may also include certain legal risks). Collateral risk measures the losses resulting directly from the credit quality of the assets in the cover pool. Moody’s deducts the collateral risk from the collateral score, which for this program is currently 5.0%.

The overcollateralisation in the cover pool will depend on the amount of the issue of the first series of covered bonds. Nordea Mortgage Bank Plc – Mortgage Covered Bonds provides OC of 2.0% on a ‘committed’ basis. According to Moody’s COBOL model, the minimum OC compatible with the Aaa rating is 0%. These figures show that Moody’s does not rely on “uncommitted” overcollateralization in its expected loss analysis.

The cover pool losses are an estimate of the losses that Moody’s currently models following a CB anchor event. Moody’s splits the pool’s losses between market risk and collateral risk. Market risk measures losses resulting from refinancing risk and risks related to interest rate and currency mismatches (these losses may also include certain legal risks). Collateral risk is derived from the collateral score, which measures the losses resulting directly from the credit quality of the assets in the cover pool.

For details on cover pool losses, collateral risk, market risk, collateral score and TPI flex on covered bond programs rated by Moody’s, please refer to the “Update Covered Bond Industry Update”, published quarterly.

TPI FRAMEWORK: Moody’s assigns a “Timely Payment Indicator” (TPI), which is our assessment of the likelihood of timely payment of interest and principal to covered bondholders following a disaster event. CB anchor. TPIs are rated as Very High, High, Likely-High, Likely, Unlikely, or Very Unlikely. The TPI framework limits the rating of covered bonds to a certain number of notches above the CB anchor.

SCORING METHODOLOGY

The main methodology used in this rating is “Moody’s Approach to Rating Covered Bonds” published in December 2021 and available on https://ratings.moodys.com/api/rmc-documents/360326. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

FACTORS THAT MAY LEAD TO AN IMPROVEMENT OR DEGRADATION OF THE RATING

The CB anchor is the primary determinant of the rating robustness of a covered bond program. A change in the level of the CB anchor could lead to an upgrade or a downgrade of the covered bonds. The TPI Leeway measures the number of notches by which Moody’s could lower the CB anchor before the rating agency downgrades the covered bonds due to the constraints of the TPI framework.

Based on the current TPI of “Probable-High”, the Leeway TPI for this program is 5 notches. This implies that Moody’s could downgrade covered bonds due to a TPI cap if it lowers the CB anchor by 6 notches, all other variables being equal.

A multi-notch covered bond downgrade may occur under certain circumstances, such as: (1) a country cap or sovereign downgrade capping a covered bond’s rating or adversely affecting the CB anchor and TPI; (2) a demotion of several notches of the CB anchor; or (3) a substantial reduction in the value of the cover pool.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Moody’s did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Hadrian Rogier
Vice President – Senior Analyst
Structured Finance Group
Moody’s France SAS
96 Boulevard Haussman
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Jose de Leon
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

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