LONDON, Feb 13 (IFR) - S&P's decision to cut Banco Popular
Espanol's rating further into junk territory sent the price of
the bank's Additional Tier 1 bond tumbling on Thursday as the
ratings agency called into question the lender's future.
S&P cut the issuer's long term debt rating by a one notch
from BB- to B+ and placed it on negative watch, citing a weaker
financial and business profile.
"The magnitude of Popular's problem assets, as well as their
continuing deterioration, have negative implications for
Popular's business stability," S&P said in a note.
Spain's fourth largest lender's non-deferrable subordinated
debt was also lowered to 'CCC' from 'CCC+' and the bank's
preference share rating was cut to 'CCC-' from 'CCC'.
The downgrade has hit the lender's riskiest bonds the
hardest, with its unrated Additional Tier 1 bond trading down
two points in the cash market.
Last October, BPE successfully launched a EUR500m perpetual
non-call five-year Additional Tier 1 bond with an 11.5% coupon
as investors placed orders topping EUR1.5bn in a bet on the
Credit analysts have taken a rather positive view on BPE
that has spent the past 18 months ramping up its capital base as
it prepares for the region-wide health check later this year.
"BPE has improved over the past few years. Like other
Spanish banks it provisioned heavily for potential real estate
losses after the transparency exercise in 2012," said Lee
Tyrrell-Hendry, a credit analyst at RBS.
"The ECB's Asset Quality Review will reinforce these efforts
to cleanse its balance sheet, while the recovery in the Spanish
economy should slow the rise in bad loans."
The Spanish lender's most senior unsecured bond offering -
a EUR750m 4% July 2015 issue - has rallied by over 250bp in the
past year to be bid at mid-swaps plus 153bp, according to
Tradeweb, and S&P's move has not impacted the issuer's senior or
covered bond deals.
BPE certainly looked to be in better shape in December when
it said it would restart dividend payments, a move which seemed
to mark a comeback for the lender after 14 months spent propping
up its capital.
But now BPE's future appears to now be in question as S&P
say that despite some decent improvement BPE's liquidity
position remains vulnerable to changes in investor sentiment and
market conditions in the context of its weakening financial
"....we could lower the ratings on Popular if we anticipate
further meaningful asset quality deterioration beyond our
current expectations, particularly if this weakened Popular's
capital position," S&P added.
Spanish banks are desperately trying to recover from a
financial crisis triggered by a 2008 property crash, which left
some with gaping capital holes last year after the government
enforced writedowns on real estate holdings.
Some had to be bailed out by the state, while others like
Popular escaped such aid but had to turn to the market. The bank
raised EUR2.5bn in a capital hike in 2012.
BPE was unavailable for comment at the time of writing.
(Reporting by Aimee Donnellan; Editing by Helene Durand and