OREANDA-NEWS. Fitch Ratings has affirmed Sandnes Sparebank Boligkreditt's (SSBB) NOK6.4bn mortgage covered bonds at 'AA' with a Stable Outlook.

KEY RATING DRIVERS
The covered bonds' rating is based on Sandnes Sparebank's reference Long-term Issuer Default Rating (IDR) of 'BBB', an unchanged Discontinuity Cap (D-Cap) of '4' (moderate risk), and the issuer's commitment of 11% nominal overcollateralisation (OC), which is above the 10% 'AA' breakeven OC. The Stable Outlook on the covered bonds' rating reflects that of Sandnes Sparebank's reference IDR.

The programme is not eligible for IDR uplift since the bank resolution legislation is still under development in Norway. The weakest link of the D-Cap remains the liquidity gap and systemic risk, and systemic alternative management.

The 'AA' breakeven OC for SSBB covered bonds' rating has increased to 10% from 9% over the last 12 months. This is due to lower margin on the assets in the cover pool and larger modelled losses on the cover pool, reflecting higher market value decline assumptions. The weighted average (WA) life of the bonds has slightly increased to 4.2 years from four years previously, while the WA life of the assets has gone up to 11.6 years from 11.2 years.

The 10% 'AA' breakeven OC is mainly driven by the credit loss component of 8% and the asset disposal loss component of 6.7%. The cash flow valuation component stands at -3.2%. The credit loss component represents the impact on the breakeven OC from the 17.61% WA default rate and the 57.99% WA recovery rate for the mortgage cover assets in a 'AA' scenario. The cover pool is characterised by high concentration in the county of Rogaland (89%), which Fitch has factored in by increasing the expected losses assumed on the assets compared with its base stresses.

RATING SENSITIVITIES
The 'AA' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BBB-' or below; or (ii) the number of notches represented by the D-Cap is reduced to three or lower; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'AA' breakeven level of 10%.

The Fitch breakeven OC for the covered bond rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a full rating report, which will shortly be available at www.fitchratings.com.