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On 4 June 2009, the Danish Financial Supervisory Authority authorised joint funding by Nykredit Realkredit A/S ("Nykredit") and Totalkredit A/S ("Totalkredit") in accordance with section 16 b of the Danish Financial Business Act.
Under the authorisation, Totalkredit may continue to fund loans secured against mortgages on real property through the issuance of covered bonds ("særligt dækkede obligationer" "SDOs") in Nykredit. The implication of the joint funding model of Danish SDO legislation is that loans are transferred from the lender credit institution (Totalkredit) to the SDO-issuing credit institution (Nykredit).
Background
Since 2005 Nykredit and Totalkredit have been authorised to jointly fund loans granted by Totalkredit through the issuance of mortgage bonds ("ROs") and from 2007 SDOs in Nykredit.
The essence of the present joint funding model is that Totalkredit funds its loans through the issuance of a master bond with Nykredit as the only creditor. The master bond serves as security for Nykredit's issuance of ROs and SDOs. It ensures that Totalkredit transfers all payments intended for the bondholders under loans granted by Totalkredit to Nykredit concurrently with Nykredit's payments to the bondholders at the latest. Thus, the bondholders enjoy the same security as if Totalkredit's lending had been granted directly by Nykredit.
Nykredit's existing joint SDO funding authorisation is subject to requirements deriving from the EU's Capital Requirements Directive (CRD). For instance, the master SDO can be included by more than 20% as security for Nykredit's SDO issuance only up to end-2010. It is likely that the CRD requirement will be extended, in which case the master SDO may continue to represent more than 20%. But as Totalkredit's share of total mortgage lending in the Nykredit Group exceeds 20%, the present model entails a risk for Nykredit if the rule is not extended, or the extension is delayed.
Essentially unchanged model
Danish SDO legislation embodies a joint funding model without the above restrictions after 2010. The Nykredit Group has therefore applied for and obtained the authorisation of the Danish Financial Supervisory Authority to apply this model instead of the current one.
The transfer of the loans does not alter the security of the bondholders, as Totalkredit which will continue to be in charge of the loan administration will transfer all payments relating to the transferred loans to Nykredit promptly after receipt of the payments.
The Nykredit Group will in the coming period consider which is the most appropriate joint funding model with respect to SDOs. The Nykredit Group has at any rate ensured that joint SDO funding of Totalkredit's lending may continue after 2010. If the Nykredit Group implements the model which has just been authorised, a stock exchange announcement will be issued.
Further, it should be added that the Nykredit Group's joint RO funding model relating to Totalkredit's lending is not subject to the above legislation and therefore remains unchanged.
Questions may be directed to Henrik Hjortshøj-Nielsen, Executive Vice President, Group Treasury, tel +45 44 55 10 40.
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