Fitch Assigns ABH Financial Limited's Senior Eurobond Expected 'BB+(EXP)' Rating

Tue Jun 3, 2014 11:38am EDT

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(The following statement was released by the rating agency) MOSCOW/LONDON, June 03 (Fitch) Fitch Ratings has assigned Alfa Holding Issuance plc's (AHI) upcoming euro-denominated senior issue of limited recourse loan participation notes an expected 'BB+(EXP)' rating. AHI, an Irish SPV issuing the bonds, will on-lend the proceeds to Cyprus-based ABH Financial Limited (ABHFL, BB+/Negative), as the ultimate borrower under the notes. The final rating is contingent on the receipt of final documents conforming to information already provided. KEY RATING DRIVERS The issue's rating is driven by ABHFL's 'BB+' Long-term Issuer Default Rating (IDR). The issue will not be guaranteed by Alfa Bank (BBB-/Negative), a main operating subsidiary of ABHFL. However, there is a cross-default clause in some of Alfa Bank's public obligations triggered by a default of ABHFL (with a materiality threshold below the current issue size), which provides additional incentive for the bank to ensure ABHFL meets its obligations. ABHFL will use the proceeds from the issue mainly to refinance existing liabilities and therefore it will not lead to an increase in the company's net leverage. The terms of the current issue contain a cross-default clause in case of insolvency or default of Alfa Bank (with a materiality threshold set above 3% of ABHFL's consolidated equity, which was about USD145m at end-2013). There is also a covenant limiting disposals, whereby ABHFL should not cease to control at least 50% of Alfa Bank. The issue's rating (as well as that of ABHFL) is not capped by Cyprus's Country Ceiling of 'B' due to the transaction's structure (and ABHFL's business overall) having minimum exposure to the local operating risks. RATING SENSITIVITIES The rating of the issue is likely to move in tandem with ABHFL's Long-term IDR, which in turn is currently notched down once from that of Alfa Bank. The Negative Outlook on Alfa Bank's Long-term IDRs reflects the potential for a downgrade due to the possible weakening of the Russian operating environment, maintaining a one-notch difference between the bank's rating and that of the Russian sovereign (BBB/Negative). If ABHFL significantly increases leverage, which is currently not our base case expectation, both ABHFL's and the issue ratings may be notched further down from Alfa Bank's rating. Contact: Primary Analyst Alexander Danilov Senior Director +7 495 956 9901 Fitch Ratings Moscow Valovaya Str, 26 Moscow Secondary Analyst Anton Lopatin Director +7 495 956 9901 Committee Chairperson James Watson Managing Director +7 495 956 9901 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@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, 'National Scale Ratings Criteria' dated 30 October 2013, 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012 and 'Rating Financial Institutions Above the Sovereign' dated 11 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Rating FI Subsidiaries and Holding Companies here Rating Financial Institutions Above the Sovereign 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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