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April 14 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Spain-based Caja de Ahorros y Pensiones de Barcelona (La Caixa)’s Long-term Issuer Default Rating (IDR) at ‘BBB-', with a Negative Outlook, Short-term IDR at ‘F3’ and Viability Rating (VR) at ‘bbb-'. A full list of rating actions is at the end of this rating action commentary.
The affirmation follows Fitch’s assessment of the implications for La Caixa’s credit profile following the announcement made by the bank’s board of directors on 10 April 2014 regarding i) conversion of La Caixa into a banking foundation, to comply with the 27 December 2013 law on savings banks and banking foundations; and ii) transfer of La Caixa’s stake in CaixaBank, S.A. (BBB/Negative) and its debt (except that linked to social projects) to Criteria CaixaHolding, S.A.U. (Criteria), a wholly-owned holding company. As a result, La Caixa will lose its banking license, although it will continue to be supervised by the Bank of Spain given its indirect shareholding interest in CaixaBank through Criteria.
The reorganisation is subject to receipt of all necessary governing body, legal and regulatory approvals; and is scheduled to be completed in 4Q14.
CaixaBank’s ratings are unaffected by the group reorganisation and remain sensitive to the factors noted in previous rating action commentaries (see “Fitch Affirms 8 Spanish Banks Following Sovereign Review”, dated 8 November 2013 at www.fitchratings.com).
La Caixa is a bank holding company and its IDRs are driven by its financial strength, as expressed by the VR. La Caixa’s VR is based on those of its 60.5%-owned CaixaBank as Fitch considers this the group’s main operating subsidiary. La Caixa’s VR is one notch below CaixaBank’s largely due to: i) a future reduction of the stake to 55.9%, after conversions of mandatory convertibles of CaixaBank and exchangeable bonds of La Caixa; and ii) a double-leverage ratio, which according to Fitch’s definitions is between moderate and high. The Outlook is Negative reflecting that on CaixaBank.
La Caixa’s outstanding debt totals EUR7.9bn. It is mainly subordinated, held by retail investors and falling due between 2017 and 2020. Following the reorganisation, the bulk of this debt will be transferred to Criteria. Criteria also has EUR1.6bn of senior debt largely maturing in 2020. Taking this debt into account, Fitch estimates La Caixa’s double-leverage ratio to be roughly 125%. La Caixa’s liquidity position is managed in conjunction with Criteria’s and Fitch views it as adequate considering the current rating. Its debt-servicing ability relies upon cash flows received from CaixaBank and to a lesser extent from stakes held by Criteria, the most important being a 34.5% share in Gas Natural SDG, S.A. (BBB+/Stable) and a 19.2% share in Abertis Infraestructuras, S.A. (BBB+/Negative) at end-2013. These investments have a track record of providing stable dividends to Criteria (and hence La Caixa) to date. In addition, Criteria holds a portfolio of less liquid equity stakes and legacy real estate assets. Fitch is of the opinion that the reorganisation plans may be slightly beneficial for unsecured creditors of La Caixa as they will be closer to Criteria’s assets.
La Caixa’s VR (and consequently IDRs) is sensitive to the factors which might drive a change in CaixaBank’s VR. Its ratings could also be affected by higher double-leverage, a strong decline in the valuation of its assets and/or a weakening of its debt-servicing capabilities. However, Fitch views any of these factors as unlikely in the foreseeable future.
Should the reorganisation go ahead as planned, Fitch will withdraw La Caixa’s VR and IDRs upon closing. Fitch may simultaneously assign new ratings to Criteria, which are likely to be at the same level as those of La Caixa, absent any unforeseen changes in the organisational structure, funding profile and/or investment policy.
KEY RATING DRIVERS AND SENSITIVITES - SUPPORT RATING AND SUPPORT RATING FLOOR
La Caixa’s Support Rating of ‘5’ and Support Rating Floor (SRF) of ‘NF’ reflect Fitch’s belief that support cannot be relied upon as it is a bank holding company, rather than a deposit-taker. Upon the completion of the reorganisation, Fitch will withdraw La Caixa’s Support Rating and SRF.
La Caixa’s subordinated debt issues are notched down once from its VR due to above-average loss severity for this sort of instrument when compared with average recoveries. The debt ratings have been affirmed in line with the affirmation of the VR and are sensitive to changes in CaixaBank’s VR and hence La Caixa‘s. As part of the reorganisation, these instruments will be transferred to Criteria. Should this occur, Fitch may transfer these debt ratings to Criteria. Fitch does not expect the subordinated debt ratings to change following the transfer and upon Criteria becoming the obligor.
The rating actions are as follows:
Long-term IDR: affirmed at ‘BBB-'; Outlook Negative
Short-term IDR: affirmed at ‘F3’
Viability Rating: affirmed at ‘bbb-’
Support Rating: affirmed at ‘5’
Supporting Rating Floor: affirmed at ‘No Floor’
Subordinated debt: affirmed at ‘BB+’
State-guaranteed debt: affirmed at ‘BBB’