TEXT-S&P rates Societe Generale's new perpetual sub notes 'BBB'
(The following statement was released by the rating agency)
Nov 28 - Standard & Poor's Ratings Services today assigned its 'BBB' long-term issue rating to Societe Generale's U.S. dollar-denominated perpetual subordinated fixed-rate resettable notes. The notes are issued under the bank's EUR125 billion debt issuance program. We understand that this issue will qualify as a Tier 2 instrument in the bank's regulatory capital. We understand Societe Generale is looking for a large, benchmark size issue.
According to the terms and conditions of the instrument, the issue is subordinated and perpetual. It is callable after five and one-half years and every fifth year thereafter. There is no step-up. We understand that the coupon would have to be suspended by Societe Generale, on a cumulative basis, following nonpayment of interest on any of the issuer's Tier 1 instruments or if the bank declares it will not pay coupon in respect of any Tier 1 securities.
According to our criteria, we generally assign issue ratings on bank hybrid capital instruments by notching down from our assessment of a bank's stand-alone credit profile (SACP). The reason for this is that a bank's issuer credit rating can incorporate government support, which does not accrue to the hybrid capital instruments it issues. Societe Generale's SACP is 'a-'. The long-term rating on Societe Generale is 'A', one notch higher than our assessment of its SACP, reflecting its "high" systemic importance in France and our view that the French government is "supportive" of its banking sector.
Under our criteria, for an SACP of 'bbb-' or higher, the minimum notching below the SACP when assigning an issue rating to bank hybrid capital instruments is two notches. These notches capture the subordination risk of the instrument and the risk of partial or untimely payment on the coupon.
The equity content category of the instrument is "intermediate" as our criteria define this term. Capital instruments with intermediate equity content can account for an amount equivalent to 33% of adjusted common equity, Standard & Poor's capital measure. In particular, the Tier 2 instrument issued by Societe Generale can cancel the coupon without causing a default or wind-up of the bank, is perpetual, and has no step-up clause, although the issuer can call the notes after five and one-half years.
RELATED CRITERIA AND RESEARCH
-- Various Rating Actions Taken on French Banks Due To rising Economic risks, Oct. 25, 2012
-- Credit FAQ: Why Banks' Dated Deferrable Hybrid Capital Instruments Often Have Minimal Equity Content, Oct. 12, 2012
-- Societe Generale And Core Subsidiaries Long-Term Ratings Lowered To 'A' Following Sovereign Action; Outlook Stable, Jan. 23. 2012
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1 2011
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010