TEXT-S&P cuts Banco de Sabadell hybrid rating to 'C'
Sept 5 - OVERVIEW -- On Sept. 3, 2012, Spain-based Banco de Sabadell S.A. (Sabadell) announced an offer to repurchase series I/2006 preferred securities and series I/2006 and I/2010 nondeferrable subordinated securities. -- We consider the offer a "distressed exchange" under our criteria. -- We are therefore lowering our issue ratings on Sabadell's preferred stock to 'C' from 'B-' and on the nondeferrable subordinated debt to 'D' from 'B+'. -- The rating action does not affect our counterparty credit ratings on Sabadell or the other issue ratings. RATING ACTION MADRID (Standard & Poor's) Sept. 5, 2012--Standard & Poor's Ratings Services said today that it had lowered its issue ratings to 'C' from 'B-' on the series I/2006 preferred stock issued by Spain-based Banco de Sabadell S.A. (Sabadell; BB+/Negative/B), and to 'D' from 'B+' on its series I/2006 and I/2010 nondeferrable subordinated debt. RATIONALE The downgrades follow Sabadell's announcement on Sept. 3, 2012, that it had offered to repurchase part of its outstanding preferred stock and nondeferrable subordinated debt, including the abovementioned series. As of today, the rated securities subject to this offer have a nominal value of EUR736 million. The rating action reflects our view that the offer constitutes a "distressed exchange" under our criteria. This is because we believe that investors will receive less value than the promise of the original securities as the offer will likely imply a repurchase below par value. We take into account the fact that the long-term rating is speculative grade and believe there is a heightened perception on the part of investors that payments on hybrid instruments and nondeferrable subordinated debt issued by Spanish banks are uncertain, particularly after the announcement of the conditions of the memorandum of understanding governing the planned EUR100 billion bail-out of the wider Spanish banking sector. These uncertainties make it highly likely, in our view, that investor acceptance of Sabadell's offer could be driven by a perception that they might be required to absorb losses in the case of any recapitalization by the government, even though it remains unclear at this stage which banks will receive state capital support under the terms of the bailout. We lowered our ratings on the two types of instruments to different levels, reflecting the different features that we understand are incorporated in the hybrid capital instruments, compared with the nondeferrable subordinated instruments. As explained in our criteria, an exchange offer on an equity hybrid instrument may reflect the possibility that, absent the exchange offer taking place, the issuer might exercise the coupon deferral option, in accordance with the terms of the instrument. In such instances, the rating on the hybrid would go to 'C', rather than the 'D' rating used for nondeferrable debt. These rating actions do not affect our counterparty credit ratings on Sabadell or any other issue ratings. According to our criteria, an 'SD' rating is assigned when we believe that the obligor has selectively defaulted on a specific issue or class of obligations, excluding those that qualify as regulatory capital. Since the notes subject to the repurchase offer qualify as regulatory capital, the downgrade of the preferred stock and subordinated debt instruments has no implications on our counterparty credit ratings on Sabadell. (For details, see paragraph 15 of our criteria article "Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings," published Dec. 23, 2010, on RatingsDirect on the Global Credit Portal). On completion of the tender offer, we will review our ratings on any untendered preferred stock and nondeferrable subordinated debt. RELATED CRITERIA AND RESEARCH -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 -- Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009 -- Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Dec. 23, 2010 -- Credit FAQ: Applying The Bank Hybrid Capital Criteria To Specific Instruments, Dec. 20, 2011 RATINGS LIST Downgrade To From Banco de Sabadell S.A. Preferred Stock EUR32.4 mil var rate fxd/fltg rate callable perp pfd stk C B- Subordinated Debt EUR230.5 mil fltg rate sub callable nts due 05/25/2016 D B+ EUR473.35 mil 6.25% med-term nts due 04/26/2020 D B+ Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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