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RPT-Fitch Rates AXA's EUR1bn Undated Subordinated Notes 'BBB'
May 19, 2014 / 9:12 AM / 3 years ago

RPT-Fitch Rates AXA's EUR1bn Undated Subordinated Notes 'BBB'

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May 19 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned AXA S.A.’s EUR1bn undated subordinated notes a ‘BBB’ rating.

KEY RATING DRIVERS

The notes are rated three notches below AXA’s ‘A’ Issuer Default Rating (IDR) to reflect their subordinated status, in line with Fitch’s standard notching methodology. The notes are issued by AXA under a EUR15bn euro medium term note (EMTN) programme. The proceeds are being used to refinance existing debt maturing in the coming 12 months.

The notes have no contractual maturity. The transaction has been structured to comply with the eligibility criteria for the 50% perpetual subordinated debt limit under Solvency 1 and for eligibility as capital under Solvency II. Fitch views this issue as neutral for AXA’s financial debt leverage and capital adequacy, as the new notes are replacing existing debt.

The notes receive 100% equity credit in Fitch’s internal risk-based capital calculation based on regulatory override as eligible Tier 1 instruments. Given the optional redemption date, the notes are also treated as 100% debt in Fitch’s financial debt leverage calculation.

The issue will lengthen the maturity profile of the group’s financial debt. Moreover, in Fitch’s view, this placement further underlines AXA’s financial flexibility, by significantly alleviating refinancing pressure for 2014 and 2015.

RATING SENSITIVITIES

The debt rating is subject to the same rating factors that may affect AXA’s Long-Term IDR.

Factors that could lead to a downgrade of AXA include a weakening of the group’s financial profile or deterioration in profitability. This would include a sustained drop in Solvency 1 regulatory capital to below 170% of the regulatory minimum (2013: 221%) or the group’s fixed-charge coverage ratio decreasing to below 8x (2013: 10x). In addition, the ratings could be downgraded if financial leverage increases above 30% (2013: 24%).

Factors that could lead to an upgrade of AXA include a strengthening of the group’s financial profile or sustainable improvement in profitability with the fixed charge coverage ratio consistently above 12x, a Solvency 1 regulatory capital adequacy ratio sustainably over 220% and a financial leverage ratio maintained at close to 20%.

Fitch currently rates AXA as follows:

-Insurer Financial Strength Rating of core insurance entities: ‘AA-'; Outlook Stable

-Issuer Default Rating of AXA S.A.: ‘A’; Outlook Stable

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