TEXT - S&P rates People's United Financial senior debt 'BBB+'
Overview -- People's United Financial plans to accelerate its common stock share repurchases, which will lower capital sooner than we anticipated, though we still expect capital ratios to remain relatively strong. -- We are assigning a 'BBB+' rating on People's $500 million, 10-year senior notes issuance. -- We are affirming our 'BBB+' issuer credit rating on People's United Financial and our 'A-/A-2' issuer credit ratings on its main bank subsidiary, People's United Bank. -- The outlook remains stable, reflecting our expectation that People's will maintain capital ratios that are higher than peers', relatively good asset quality, and steady earnings generation. Rating Action On Dec. 4, 2012, Standard & Poor's Ratings Services assigned its 'BBB+' rating on People's United Financial Inc.'s $500 million senior notes. At the same time, we affirmed our 'BBB+' issuer credit rating on People's and our 'A-/A-2' issuer credit ratings on its main bank subsidiary, People's United Bank. The outlook remains stable. Rationale Our rating affirmation follows People's announcement that it plans to significantly raise the limit on its common share repurchase program. The company intends to repurchase 10% of its outstanding shares in 2013, mainly financed through a relatively large senior debt issuance. We had previously expected the company to repurchase 5% of outstanding shares in 2013 and a much lesser amount in 2014. Although the company's plans for a substantial capital deployment are negative from a credit perspective, these actions are broadly within our expectations for the ratings and are consistent with the company's strategies, in our opinion. Since its 2007 stock conversion, People's has been deploying its excess capital through acquisitions, share repurchases, and dividends. We recognize that these planned share buybacks in 2013 will significantly diminish People's capital ratios, but we project that the company will maintain capital ratios within our "strong" category (as our criteria define it). In particular, we project that People's risk-adjusted capital (RAC) ratio, based on our measurement, will exceed 10% over the next two years. We also believe that People's regulatory ratios should remain robust. We estimate that People's tangible common equity ratio, which was 11.2% as of Sept. 30, 2012, may remain higher than 9%, which would still be ample relative to many peers'. Importantly, we assume in our forecasts that People's will not repurchase any common shares in 2014. Our ratings on People's and its main bank subsidiary, People's United Bank, take into account their satisfactory competitive position as a midsize New England regional bank. We also consider People's very good asset quality track record, although we recognize its geographic concentration and some risks associated with its substantial growth over the past few years. In light of the company's plan to accelerate its use of capital for repurchases, we expect that it will not make any large acquisitions or sharply increase its organic growth in the near term. Outlook The stable outlook reflects our expectation that People's will maintain its relatively good asset quality and steady earnings generation. We also expect that People's currently strong RAC levels will decline, mainly because of share buybacks through 2013, but that the company will maintain a RAC ratio of at least 10%. In addition, we expect that People's will temper its organic growth and previously active acquisition strategy over the next two years. We could revise our outlook to negative or lower the ratings if we anticipate a decline in the RAC ratio to less than 10% for any reason, including larger than already announced share repurchases or cash-financed acquisitions. We could also lower the rating if asset quality deteriorates significantly, such as a rise in the nonperforming assets ratio (for originated loans) to 4%. Alternatively, we could revise the outlook to positive or raise the ratings if the company demonstrates a strong risk position while maintaining strong capital ratios. We could eventually consider People's risk position as stronger than peers' if the company further establishes a track record of good risk management and better-than-peers' loan underwriting and credit metrics. Ratings Score Snapshot Issuer Credit Rating A-/Stable/A-2 Bank Holding Company Rating BBB+/Stable/-- SACP a- Anchor bbb+ Business Position Adequate(0) Capital and Earnings Strong (+1) Risk Position Adequate (0) Funding and Liquidity Average and Adequate (0) Support 0 GRE Support 0 Group Support 0 Sovereign Support 0 Additional Factors 0 Related Criteria And Research -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 Ratings List Ratings Affirmed People's United Financial Inc. Counterparty Credit Rating BBB+/Stable/-- Subordinated BBB People's United Bank Counterparty Credit Rating A-/Stable/A-2 Certificate Of Deposit A-/A-2 New Rating People's United Financial Inc. Senior Unsecured $500 mil. notes due in 2022 BBB+