New legislation addressing refinancing risk

In order to address the refinancing risk connected with the issuance of bonds where the term of the underlying loan is longer than the maturity of the bond used to fund it, the Danish Parliament on 19 March 2014 adopted changes to the Act on Mortgage-Credit Loans and Mortgage-Credit Bonds, etc. and to the Danish Financial Business Act.

The implementation date of the new Act was 1 April 2014 for bonds with an original maturity of up to and including 12 months. For bonds with an original maturity of more than 12 months, the implementation date was 1 January 2015.

The legal change imposes regulation in case interest rates suddenly rise very sharply (+ 5 percentage points) at the refinancing of bonds with a maturity up to and including 2 years (interest rate trigger), and in an extreme crisis where a mortgage bank is unable to complete the refinancing by sale of bonds at market terms (failed refinancing). In both cases the solution is based on maturity extension of the existing bonds.

Finally, the new legislation has provided clarity over the position of bonds and loans where the terms of the loans are longer than the maturity of the underlying bonds, if a mortgage bank is under resolution.

Due to the new legislation, DLR has opened new 1Y and 2Y ARM bullet bond series with an "IT" designation (interest trigger), and new 3Y-5Y ARM bullet bond series with an "RF" designation (refinancing failed). CIBOR/CITA linked bonds financing DLR’s ARM Short loans issued after 1 July 2014 are equally comprised by statutory maturity extension in case of failed refinancing.

The interest rate triggers on the DLR ISINs comprised by the new legislation will be announced on DLR’s website prior to the refinancing auctions: /arm-auctions arrow3

The Danish mortgage banks have jointly prepared an overview of the new Danish covered bond legislation addressing refinancing risk: Overview of the new Danish covered bond legislation addressing refinancing risk arrow3

Contact IR

Pernille Lohmann

Head of IR and Rating

+45 33 42 08 74 - pel@dlr.dk