(Repeat for additional subscribers)
May 19 (The following statement was released by the rating agency)
Fitch Ratings has assigned Nykredit Realkredit's (A/Stable/F1) planned issue of Tier 2 contingent capital notes an expected rating of 'BBB(EXP)'.
The final rating is contingent upon final documents conforming to information already received.
KEY RATING DRIVERS
The notes are subordinated Tier 2 instruments without a coupon deferral feature and subject to a 7% capital adequacy trigger. On breach of the trigger, the notes will be automatically written down to zero and the notes cancelled, resulting in loss of principal and future interest for investors. The capital adequacy trigger is based on Nykredit Realkredit's individual or consolidated common equity Tier 1 (CET1) ratio or Nykredit Holding's consolidated CET1 ratio. The notes are rated three notches below Nykredit Realkredit's 'a' Viability Rating (VR) in accordance with Fitch's criteria for "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 31 January 2014 at www.fitchratings.com. The notes are notched twice for loss severity to reflect the principal write-down feature, and once for non-performance risk, to reflect the moderate incremental risk due to the 7% CET1 ratio trigger, partly offset by the large capital buffer above this trigger point, compared with the risk reflected in the bank's VR.
The notes have been assigned an equity credit of 50%.
RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SENIOR DEBT
As the notes are notched from Nykredit Realkredit's VR, their rating is primarily sensitive to any change in this rating. The notes' rating is also sensitive to a wider notching if Fitch changed its assessment of the probability of the notes' non-performance risk relative to the risk captured in Nykredit Realkredit's VR.