TEXT - Fitch affirms Hypothekenbank Frankfurt 'A-' rating

Tue Feb 12, 2013 10:16am EST

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(The following statement was released by the rating agency)
    Feb 12 - Fitch Ratings has affirmed Hypothekenbank Frankfurt AG's (HF) and
Hypothekenbank Frankfurt International S.A.'s (HFI) Long-term Issuer Default
Ratings (IDR) at 'A-' with a Stable Outlook. At the same time, Fitch has
downgraded the hybrid instruments of Eurohypo Capital Funding Trusts I and II to
'C' from 'CC'. A full list of rating actions is at the end of this rating action
commentary.

RATING RATIONALE 

The support-driven ratings of the banks are at their Support Rating Floors and 
reflect Fitch's view of the high likelihood of support from the Federal Republic
of Germany ('AAA'/Stable), particularly in view of their large size and 
outstanding issuance in the Pfandbrief market.  

The downgrade of the hybrid instruments to 'C' from 'CC' reflects that the 
instruments are non-performing. Fitch does not expect the instruments to be 
serviced for a prolonged period, and any servicing of the instruments would 
likely result in severe economic losses, particularly in light of the fact that 
the bank is being wound down.  

RATING DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch expects that state support would be forthcoming via the bank's ultimate 
owner, Commerzbank AG ('A+'/Stable). Fitch's view of the likelihood of state 
support reflects HF's interconnectivity with its ultimate parent's 
creditworthiness and its large volume of issued German Pfandbriefe. HF has a 
letter of backing (Patronatserklaerung) from Commerzbank and a profit and loss 
transfer agreement is in place with its direct owner, Commerzbank Inlandsbanken 
Holding GmbH (not rated), a wholly-owned subsidiary of Commerzbank.  

Any change in the support-driven ratings would result from a change in either 
Fitch's view of the Federal Republic of Germany's own creditworthiness or in the
agency's opinion of the authorities' propensity to provide support. Fitch does 
not assign a Viability Rating (VR) to HF as it is in orderly wind-down mode. In 
addition, HF is highly operational and financially integrated within Commerzbank
Group.

SUBORDINATED DEBT

Fitch views Commerzbank's 'bbb-' VR as the initial source of support for the 
bank's subordinated debt, should it be required, given the Patronatserklaerung 
and profit and loss transfer agreement. The degree of notching relative to 
Commerzbank's VR reflects Fitch's opinion that there is greater non-performance 
risk on HF's sub debt than there is on Commerzbank's own subordinated debt 
(rated 'BB+'). This is because HF is in wind down and its large size relative to
Commerzbank means a situation could arise where additional support for HF 
ultimately needs to be channelled from federal sources. 

Under such circumstances, support for subordinated debt cannot be assumed, given
the precedent in the EU for subordinated debt burden sharing. The rating of the 
subordinated debt is therefore sensitive to an increase in the likelihood of 
such an event occurring. 

Fitch also notes that in 2012 the European Commission changed the condition 
imposed on Commerzbank in 2009 to divest its subsidiary Eurohypo, now HF, into a
condition that the company be run down. As a bank in wind-down, HF is not a 
viable entity.    

SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES

HFI's ratings are in line with its 100% parent HF as the subsidiary benefits 
indirectly from the support provided to the parent, as well as having a 
Patronatserklaerung from HF. As a result the ratings sensitivities for HFI are 
the same as those for HF. 

The rating actions are as follows: 

HF:

Long-term IDR: affirmed at 'A-', Outlook Stable
Short-term IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Support Rating Floor: affirmed at 'A-'
Senior unsecured debt: affirmed at 'A-'
Subordinated debt: affirmed at 'B+'

HFI:
Long-term IDR: affirmed at 'A-', Outlook Stable
Short-term IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
EUROHYPO Capital Funding Trust I/II preferred stock (XS0169058012, 
DE000A0DZJZ7): downgraded to 'C' from 'CC' 

 (Caryn Trokie, New York Ratings Unit)
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