FlexKort®
CITA Referencing Floating Rate Loans Launched by Realkredit Danmark
October 2013
Key Take-Aways
New floating rate mortgage referencing six months CITA rates launched by Realkredit Danmark under the trademark
FlexKort®  Peer mortgage banks committed by agreement with Ministry of Business and Growth to follow suit before
year end
Three-year covered bonds issued out of Realkredit Danmark’s Capital Centre T for the funding of FlexKort® on a pure
pass-through basis  Terms in the range from one to ten years targeted
Covered bonds will be opened and closed at the discretion of the issuer  This enables Realkredit Danmark to actively
manage liquidity and refinancing volumes
FlexKort® will provide Realkredit Danmark with longer-term funding than FlexLån® F1  FlexKort® is instrumental to
Realkredit Danmark’s compliance to a future Net Stable Funding Requirement
FlexKort® will be competitively priced against FlexLån ® F1  FlexLån® F1 borrowers across all segments advised to ‘move
out the yield curve’ or refinance into FlexKort®
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CITA New Standard in Mortgage Banking?
Transition to CITA standard from CIBOR standard and possibly interest-reset standard
221bn
Capped floating-rate loans
?
Fixed-rate
Interest-reset
CIBOR
CITA
CIBOR rates stigmatised following LIBOR scandals and to a lesser extent CIBOR debacle, yet some corporate exposures are
expected to stay on CIBOR standard because of open swap positions
Mortgage banks will have strong interest in only operating a single standard for covered bond liquidity and advisory
services considerations
CITA standard likely to replace CIBOR standard on (uncapped) floating-rate mortgages, yet the open question remains
whether the CITA standard will prevail over the interest-reset standard
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FlexKort® Fact Sheet
Bond characteristics

SDROs issued out of Capital Centre T (rated AAA/AA+)
Term to maturity

1 to 10 years

First issue matures on 1 July 2016

First issue initial coupon of 35bps per annum

Future coupons set as CITA 6M * 365/360 plus spread

Spread on first issue of 30bps per annum (Bond target price of 99.80 to 99.90)

Spread on new issue refinancing this issue to be determined at auction

Hybrid amortisation

10 year interest only option

Non-callable
Fixing

Fixing on fourth last banking day prior to 1 January and 1 July
Issuance

Par rule observed

Initial bloc-issue of 2bn

Listed at Nasdaq OMX Nordic Copenhagen

Registered at VP Securities
Coupon
Amortisation
Listing and registration

FlexKort® is based on known product platform

The product will be on offer to all (domestic) borrowers across segments
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CITA vs CIBOR Rates
Agreement on reference rates between Ministry of
Business and Growth and financial industry signed in
September 2012
Banks committed to establish CITA reference rates based
on quotations from as many banks as possible for terms
ranging from 1 week to 1 year
Ministry of Business and Growth committed to established
public oversight on the fixing of CIBOR and CITA reference
rates
Mortgage banks offering mortgages referencing CIBOR
rates committed to offer mortgages referencing CITA rates
as well before end 2013
Mortgage banks further committed to offer refinancing of
mortgages referencing CIBOR into mortgages referencing
CITA when feasible
Mortgage banks further committed to offer capped floating
rate mortgages referencing CITA rates should a well
functioning CITA/EONIA swaptions market be established
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CITA vs CIBOR Rates
(continued)
CITA
Abbreviation for…
Copenhagen Interbank Tomorrow/Next
CIBOR
Copenhagen InterBank Offered Rate
Average
Definition
The CITA reference rate is the rate at
CIBOR is the interest rate at which a
which actual CITA swaps of specific
bank is prepared to lend Danish kroner to
maturities are quoted any given day
a prime bank on an uncollateralized basis
for maturities up to 1 year
Fixing
CITA is fixed daily as a weighted average
CIBOR is fixed daily as a weighted
of the reported T/N turnover from six
average of reported rates from six major
major banks in Denmark
banks in Denmark (subject to specific
calculation principles)
Credit risk
In a CITA interest rate swap the T/N
The banks must take credit risk on the
rates are exchanged for a fixed DKK
prime bank into consideration when
interest rate, for a fixed period agreed
quoting the CIBOR rate
upon by the swap contract. No exchange
of principal is taking place, and hence
there’s only minimal credit risk
Actual trades
Based on actual turnover figures from the
No actual trades
day before
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CITA vs CIBOR Rates
(continued)
Estimated depth of CIBOR vs CITA swap markets
6M CITA rates versus 6M CIBOR rates
700
3500
Bps
DKKbn
3000
600
2500
500
6M CITA
400
2000
6M CIBOR
300
1500
200
1000
100
500
0
0
CIBOR
CITA
03-07-2013
03-01-2013
03-07-2012
03-01-2012
03-07-2011
03-01-2011
03-07-2010
03-01-2010
03-07-2009
03-01-2009
03-07-2008
03-01-2008
03-07-2007
03-01-2007
03-07-2006
03-01-2006
03-07-2005
03-01-2005
-100
Note: Estimated outstanding notional
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Refinancing Procedure
Example of Bidding Structure and Cut-off
Volume (bid)
Acc. volume
500,000,000
1,500,000,000
250,000,000
:
250,000,000
300,000,000
100,000,000
:
500,000,000
500,000,000
Spread (bps)
500,000,000
2,000,000,000
2,250,000,000
:
7,700,000,000
8,000,000,000
8,100,000,000
:
11,750,000,000
12,250,000,000
14
-5
-1
0
12
10
:
8
9
10
12
6
:
2
22
23
Bn
4
-5 -1 0 1 2 4 5 7 8 9 10 12 13 14 15 17 18 19 21 22 23
Bps
In this example a target volume of 8bn is sold at a price of 100.20 (par plus bond price cut) at a spread to 6M CITA at 10bps
Bids are made in terms of amount and spread to 6M CITA  Bond price is fixed at par plus bond price cut (i.e. 100.20)
All bids below the cut-off fixing spread will be settled in full at the cut-off fixing spread  For bids at the cut-off fixing
spread proportional allocation may be used
Bids accepted from all members with access to Nasdaq OMX Nordic Copenhagen’s mortgage issuing sub-market
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Covered Bond Issuance and Liquidity
Stylised Example
Three year covered bonds issued out of Capital Centre T
(rated AAA/AA+) for the funding of FlexKort® on a pure
pass-through basis
Covered bonds are opened and closed at the full discretion
of Realkredit Danmark
A three-year bond (A) is opened for issuance and closed
after one year when volume has been built up
A five-year bond (B) is opened for issuance when (A) is
closed. After 18 months this bond is closed and a new
bond will be opened
Upon the maturity of (A) a new bond (C) is opened only
Realkredit Danmark will close bonds for issuance when the
for refinancing purposes as the volume of this bond is
term becomes too short (e.g. shorter than two years) or the
deemed sufficient and manageable from a refinancing risk
outstanding volume too great (e.g. greater than DKK30bn)
view
closed
This structure enables Realkredit Danmark to actively
(B)
manage liquidity and refinancing volumes at any future
refinancing date
closed
This sets FlexKort® apart from FlexLån® where refinancing
volumes are implicitly set by the borrowers by their choice
Refinanced
(A)
of refinancing profile
Par rule observed (albeit non-callable) to avoid capital gains
tax on borrowers
Refinanced
AUG
2013
AUG
2014
AUG
2015
(C)
AUG
2016
AUG
2017
AUG
2018
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Towards Longer-term Funding
Expected Spread to CITA rates vs term to maturity
Realkredit Danmark pursues an overall strategy of
obtaining longer-term funding in preparation for future
80
Bps
stable funding requirements
Realkredit Danmark expects covered bonds funding
FlexKort® to be priced on a relatively steep spread curve
with spreads ranging from 17bps (0.5Y) to 71bps (10.5Y)
60
Longer-term funding thus implies higher funding costs
absorbed by the borrowers (pure pass-through principle)
40
Term to maturity of three years on first covered bond
funding FlexKort® set to balance the overall strategy
against expected funding costs
20
At this term to maturity a spread to CITA rates of 37bps is
expected for the covered bond to be priced at par
Years
0
0
2
4
Source: Danske Markets
6
8
10
12
If the spread curve flattens Realkredit Danmark will target
terms in the range from five to ten years going forward
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Net Stable Funding Ratio and SIFI Recommendations
Net Stable Funding Ratio Compliance
721bn
637bn
750bn
29bn
105bn
532bn
Covered Bonds >1Y
Senior debt
Liable Capital
Available Funding Required Funding
Deficit
2013Q2
Available Funding Required Funding
Deficit
2018Q2E
Net Stable Funding Ratio was proposed by the Basel Committee in 2010  Financial institutions required to fund their
assets (except short-term securities) with sources of stable funding (e.g. bonds with a remaining term >1Y)
Net stable funding requirement imposed on systemically important financial institutions (SIFIs) recommended by Danish
SIFI committee in March 2013
Realkredit Danmark projected to reduce Net Stable Funding Ratio compliance deficit from 105bn to 29bn in 2018 assuming
interest reset loans F1 be refinanced into FlexKort® or interest reset loans F2-F10 with a 5 year average term to maturity
on covered bond funding at a 20 percent rate per annum  Realkredit Danmark initiatives are necessary to ensure
compliance with possible future regulations
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Borrower Demand Encouraged by Pricing
Pricing of FlexKort® vs FlexLån® F1
160
Realkredit Danmark will encourage demand for FlexKort®
by price incentives
Bps
12bps
140
Funding costs are expected at 40bps which compares to
120
30bps for interest reset loans F1 (annualised)
100
Difference in funding costs more than offset by bond price
cut at refinancing of 7bps per annum for FlexKort® and
80
30bps per annum for FlexLån® F1 respectively
60
Pricing difference visible to borrowers when comparing
loan yield to maturity or loan APR
40
Free of fees campaign (worth up to 5,000) when refinancing
20
FlexLån® into FlexKort®
0
FlexKort®
Funding rate
Margin
FlexLån® F1
Bond price cut at refinancing
Realkredit Danmark will advise borrowers to refinance
FlexLån® F1 into FlexKort® or ‘move out the yield curve’
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Disclaimer
This publication has been prepared by Realkredit Danmark for information purposes only and should be viewed solely in
conjunction with the oral presentation provided by Realkredit Danmark. It is not an offer or solicitation of any offer to
purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue
or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising
from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short
positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. The
Equity and Corporate Bonds analysts are not permitted to invest in securities under coverage in their research sector. This
publication is not intended for retail customers in the UK or any person in the US. Realkredit Danmark A/S is a subsidiary
company of Danske Bank A/S. Danske Bank A/S is authorised by the Danish Financial Supervisory Authority and subject to
limited regulation by the Financial Services Authority (UK). Details on the extent of our regulation by the Financial Services
Authority are avail-able from us on request. Copyright (C) Realkredit Danmark A/S. All rights reserved. This publication is
protected by copyright and may not be reproduced in whole or in part without permission.
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