Fitch Rates Barclays' AT1 Issue 'BB+(EXP)'

Fri May 16, 2014 7:26am EDT

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(The following statement was released by the rating agency) LONDON, May 16 (Fitch) Fitch Ratings has assigned Barclays Plc's (A/Stable/F1/ a) potential upcoming issue of perpetual subordinated contingent convertible securities (CCS) an expected rating of 'BB+(EXP)'. The securities are expected to be issued as part of the bank's exchange offer for certain legacy hybrid tier 1 instruments announced yesterday. The final rating assignment is contingent on the receipt of final documentation conforming to information already received and the exchange offer being completed. KEY RATING DRIVERS The CCS are additional Tier 1 (AT1) instruments with fully discretionary interest payments and are subject to conversion into Barclays plc ordinary shares on breach of a consolidated 7% CRD IV common equity Tier 1 (CET1) ratio, which is calculated on a 'fully loaded' basis. The rating of the securities, under Fitch's 'Assessing and Rating Bank Subordinated and Hybrid Securities' criteria, is five notches below Barclays plc's 'a' Viability Rating (VR), in line with Fitch's criteria for assigning ratings to hybrid instruments. The securities are notched twice for loss severity to reflect the conversion into common shares on a breach of the 7% fully loaded CET1 ratio trigger, and three times for non-performance risk. The notching for non-performance risk reflects the instruments' fully discretionary coupon payment, which Fitch considers as the most easily activated form of loss absorption. Under the terms of the securities, the issuer will be subject to restrictions on interest payments if it has insufficient distributable items, if it is insolvent or if it fails to meet the combined buffer capital requirements that will be gradually introduced from 2016. At end-March 2014, Barclays reported a 9.6% fully loaded CET1 ratio and the bank is targeting a ratio above 11% by 2016. Fitch has assigned 100% equity credit to the securities, which reflects their full coupon flexibility, their ability to be converted into common equity well before the bank would become non-viable, their permanent nature and their subordination to all senior creditors. RATING SENSITIVITIES As the securities are notched down from Barclays plc's VR, their rating is primarily sensitive to any change to the VR, which itself is currently in line with Barclays Bank plc's VR, as per our 'Rating FI Subsidiaries and Holding Companies' criteria. Double leverage at the holding company could result in its VR being rated below Barclays Bank's VR, and hence a downgrade of the securities. The securities' ratings are also sensitive to changes in their notching, which could arise if Fitch changes its assessment of the probability of their non-performance relative to the risk captured in Barclays plc's VR. This may reflect a change in capital management in the group or an unexpected shift in regulatory buffer requirements, for example. Contact: Primary Analyst Christian Scarafia Senior Director +44 20 3530 1012 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Alan Milne Associate Director +44 20 3530 1491 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014 and Assessing and Rating Bank Subordinated and Hybrid Securities Criteria, dated 31 January 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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