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Fitch Upgrades COREALCREDIT's IDR to 'BBB' on Acquisition By Aareal Bank
April 9, 2014 / 3:11 PM / in 3 years

Fitch Upgrades COREALCREDIT's IDR to 'BBB' on Acquisition By Aareal Bank

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(The following statement was released by the rating agency) FRANKFURT/LONDON, April 09 (Fitch) Fitch Ratings has upgraded Germany-based COREALCREDIT BANK AG's (COREALCREDIT) Long- and Short-term Issuer Default Ratings (IDR) to 'BBB' and 'F2' respectively, from 'BBB-' and 'F3'. The Rating Outlook is Stable. At the same time Fitch has withdrawn COREALCREDIT's Support Rating Floor (SRF) of 'BBB-' and its Viability Rating (VR) of 'bb' . Aareal Bank AG's (Aareal) ratings are unaffected by the rating action. A full list of rating actions is provided at the end of this commentary. The rating action followed Aareal's completion of the acquisition of COREALCREDIT announced in December 2013. KEY RATING DRIVERS - IDRs, SUPPORT RATING, SRF, SENIOR DEBT, SUBORDINATED DEBT, VR The upgrades of COREALCREDIT's IDRs and senior debt reflect Fitch's expectation that Aareal would support COREALCREDIT, if needed. The ratings, following the upgrades, are at the same level as Aareal's VR of 'bbb', reflecting the bank's ability to provide support from its own resources (see "Fitch Affirms Aareal at 'A-'; Maintains COREALCREDIT on RWP"). The ratings of COREALCREDIT also factor in a very strong propensity for Aareal to support COREALCREDIT, underpinned by a profit-and- loss sharing agreement between the two financial institutions. The acquisition by Aareal has resulted in a change of support source for COREALCREDIT to institutional (from Aareal) from sovereign (Germany; AAA/Stable), and consequently, in today's withdrawal of COREALCREDIT's SRF. Fitch's expectations of support-driven ratings for EU banks were expressed in a series of rating action comments on 26 March 2014, including "Fitch Revises Outlooks on 18 EU Commercial Banks to Negative on Weakening Support", where Fitch stated that SRFs of EU banks, including Aareal, are likely to be revised downwards within the next one to two years. This would reflect further progress being made in implementing the legislative and practical aspects of enabling effective bank resolution frameworks, thereby reducing implicit sovereign support for the banks. However, mitigating factors, which could arise in the meantime, include upgrades of VRs to the level of current SRFs, significant increases in buffers of junior debt or corporate actions. COREALCREDIT's upgraded Short-term IDR of 'F2' is the higher of two potential Short-term IDRs that map to a Long-term IDR of 'BBB'. This reflects both the greater likelihood of state support being available through Aareal to COREALCREDIT in the short-term as well as Aareal's broader funding franchise, which should benefit COREALCREDIT's access to liquidity. COREALCREDIT's capital, funding and liquidity will be managed at a consolidated level - meaning COREALCREDIT's liquidity will benefit from Aareal's sound funding access - and the profit-and-loss sharing agreement will mutualise the two banks' earnings. Consequently, Fitch has withdrawn COREALCREDIT's VR. COREALCREDIT's subordinated debt ratings are now anchored to and are one notch below Aareal's VR, based on Fitch's assumption that support from Aareal to COREALCREDIT will extend to these securities. RATING SENSITIVITIES - COREALCREDIT's IDRs, SR, SENIOR DEBT AND SUBORDINATED DEBT COREALCREDIT's IDRs, SR, senior and subordinated debt ratings share the same sensitivities as Aareal's VR. They are also sensitive to a weakening in Fitch's assumptions around the propensity of Aareal to provide timely support to COREALCREDIT. Any upgrade of Aareal's VR would likely result in an upgrade of COREALCREDIT's Long-term IDR, SR, senior and subordinated debt ratings. COREALCREDIT BANK AG: Long-term IDR: upgraded to 'BBB' from 'BBB-', Rating Watch Positive removed; Outlook Stable Short-term IDR: upgraded to 'F2' from 'F3'; Rating Watch Positive removed Senior unsecured notes: upgraded to 'BBB' from 'BBB-'; Rating Watch Positive removed Subordinated debt: upgraded to 'BBB-' from 'BB-'; Rating Watch Positive removed Support Rating: affirmed at '2' Support Rating Floor: withdrawn at 'BBB-' Viability Rating: withdrawn at 'bb' Contact: Primary Analyst Patrick Rioual Director +49 69 76 80 76 123 Fitch Deutschland GmbH Taunusanlage 17 60325 Frankfurt am Main Secondary Analyst Krista Davies Associate Director +44 203 530 1579 Committee Chairperson Bridget Gandy Managing Director +44 20 3530 1095 Media Relations: 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, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria 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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