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Covered bonds in Denmark: Main contents in current legislation

Covered bonds in Denmark: Main contents in current legislation. August 2007 The Association of Danish Mortgage Banks. Issuers of bonds secured by real property. Differences between SDO, SDRO and RO (1). 1) CRD – Directive 2006/48/EC definition of covered bonds

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Covered bonds in Denmark: Main contents in current legislation

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  1. Covered bonds in Denmark: Main contents in current legislation August 2007 The Association of Danish Mortgage Banks

  2. Issuers of bonds secured by real property

  3. Differences between SDO, SDRO and RO (1) 1) CRD – Directive 2006/48/EC definition of covered bonds 2) Does not comply with CRD demand for continuously compliance with LTV requirements 3) Mortgage bonds issued before 1 January 2008 will maintain the low risk weight of 0.1 percent in the entire duration of the bonds. 4) Commercial banks are also allowed to apply ship’s mortgages.

  4. Differences between SDO, SDRO and RO (2) 1) Technically not covered bonds. Risk weight in the standardised method in Directive 2006/48/EC is 20 per cent. 2) As of 1 July 2009

  5. Maximum lending limits * Without additional collateral the LTV-limit is 60 per cent.

  6. Balance principle (1) 1) Issuer may after 1 July 2007 choose between compliance of specific or general balance principle 2) There have been laid down different loss limits for mortgage banks, commercial bank and a ship financing institution

  7. Balance principle (2)

  8. Liability conditions in case of insolvency of a mortgage bank SDO/SDRO/RO-investor demand: • Assets in capital centre including legally determined excess cover • Voluntarily additional excess cover • Preferential claim against the ordinary assets available for distribution Derivative – counterparties demands: Rank pari passu with bondholders in capital centres “Junior Covered Bonds” – investor demand: Secondary secured claims against the funds of a capital centre and an unsecured claim against the ordinary assets available for distribution

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