March 5 (The following statement was released by the rating
Fitch Ratings has upgraded Spain-based Banco de Valencia's (BdV)
Long-term Issuer Default Rating (IDR) to 'BBB' from 'BB-' and Short-term IDR to
'F2' from 'B' and removed them from Rating Watch Positive (RWP). The Outlook on
the Long-term IDR is Negative. The rating actions follow the formalisation
concluded on 28 February 2013 of the acquisition by CaixaBank S.A. of
the 98.9% stake in BdV from Spain's Fund for Orderly Bank Restructuring (FROB).
This follows receipt of all necessary regulatory and legal approvals and
compliance with all conditions stipulated in the sale agreement. A list of
rating actions is at the end of this rating action commentary.
CaixaBank acquired FROB's stake in BdV for the price of one euro. Prior to
completing the sale, the following conditions had to be met:
- EUR4.5bn capital injection by the FROB into BdV in the form of European
Stability Mechanism (ESM) bonds.
- The transfer of EUR1.9bn in real estate exposures (net of EUR2.9bn
impairment reserves) to the Spanish asset management company, Sociedad de
Gestion de Activos Procedentes de la Restructuracion Bancaria (SAREB), in
exchange for state-guaranteed SAREB debt issues for the same amount.
- Burden-sharing applied to EUR416m of BdV's subordinated debt and preferred
- Creation of an asset protection scheme, whereby the FROB covers 72.5% of
certain unreserved losses on BdV's SME loan portfolio and off-balance-sheet
exposures over a 10-year period.
RATING ACTION RATIONALE AND DRIVERS - IDRS, VR, SUPPORT RATING AND SUPPORT
RATING FLOOR (SRF)
BdV is now a subsidiary of CaixaBank and will be fully consolidated into the
group accounts. Its IDRs have been aligned with those of CaixaBank because Fitch
regards it as a core subsidiary. According to details provided in the European
Commission's statement published on 27 November 2012, BdV will cease to exist as
an independent entity and will be fully integrated into CaixaBank.
Fitch currently considers the likelihood of CaixaBank supporting BdV to be
high. This is reflected in the upgrade of BdV's Support Rating to '2' from '3'
and the removal of the RWP on this rating.
Fitch has affirmed and withdrawn BdV's Viability Rating (VR) of 'f' and SRF
of 'BB-'. The withdrawals reflect the reorganisation of BdV. Given its
integration into CaixaBank, Fitch considers that BdV can no longer be viewed as
a stand-alone entity. Its VR is therefore no longer considered to be
analytically meaningful and is being withdrawn. The primary source of support
for BdV is considered by Fitch to be CaixaBank, rather than the Kingdom of
Spain. SRFs are not assigned to banks whose primary source of support is
RATING SENSITIVITIES - IDRS AND SUPPORT RATING
BdV's IDRs are sensitive to the same factors which might drive a change in
the IDRs of CaixaBank, including a deeper and more protracted recession in Spain
or any unanticipated liquidity shock. The Negative Outlook for BdV's Long-term
IDR reflects that of CaixaBank and the Negative Outlook on Spain's 'BBB'
Long-term IDR. For further information, see 'Fitch Affirms CaixaBank at BBB on
Merger; Downgrades La Caixa to BBB-', dated 3 August 2013 on w.fitchratings.com.
BdV's Support Rating is sensitive to any change in the level of importance and
integration of the bank within CaixaBank, a lowering of which is considered to
be unlikely, and/or to any sovereign rating action that could affect the ratings
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
BdV's subordinated debt and preferred stock have been affirmed at 'C' as
they were subject to pre-acquisition burden-sharing, as established by the
Memorandum of Understanding signed in July 2012 and Royal Decree Law 24/2012.
Burden-sharing was completed on 11 February 2013, with holders of the tendered
bonds absorbing losses of between 85%-90% through the distressed exchange into
either contingent convertibles or equity. Following completion of the burden
sharing, Fitch has withdrawn the ratings of these instruments as they have been
extinguished in connection with the exchange.
The rating actions are as follows:
Long-term IDR: upgraded to 'BBB' from 'BB-'; removed from RWP; Outlook
Short-term IDR: upgraded to 'F2' from 'B'; removed from RWP
VR: affirmed at 'f'; withdrawn
Support Rating: upgraded to '2' from '3'; removed from RWP
SRF: affirmed at 'BB-'; withdrawn
Subordinated debt: affirmed at 'C'; withdrawn
Preferred stock: affirmed at 'C'; withdrawn