(The following statement was released by the rating agency)
Nov 30 - Fitch Ratings has revised Banco de Valencia's (BValencia)
Long- and Short-term Issuer Default Ratings (IDR) of 'BB-' and 'B' respectively
to Rating Watch Positive (RWP) from Rating Watch Negative (RWN). At the same
time the agency has revised the bank's Support Rating (SR) of '3' to RWP from
RWN. Its Support Rating Floor (SRF) has been removed from RWN and its Viability
Rating (VR) has been affirmed at 'f'. BValencia's subordinated debt and
Preference Share ratings have been affirmed at 'C'. A full list of rating
actions is at the end of this rating action commentary.
RATING ACTION RATIONALE IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR
BValencia's IDRs and SR were placed on RWP following the announcement made by
BValencia's majority shareholder, the Fund for Orderly Bank Restructuring
(FROB), on 27 November 2012 that it had reached agreement with (CaixaBank, S.A.
(CaixaBank, VR 'bbb') regarding its acquisition of BValencia for a token amount
of one euro.
According to details provided by the EC statement published on 27 November 2012,
BValencia will cease to exist as an independent entity and will be fully
integrated into CaixaBank. Rating action taken by Fitch is based on these
assumptions. The RWPs assigned to BValencia's ratings reflect Fitch's opinion
that the proposed transaction is positive for BValencia as it will be integrated
into a more highly rated group. CaixaBank's Long-term IDR of 'BBB' is based on
its intrinsic strength, hence its VR. BValencia's SR and SRF are currently based
on state-support; once the bank is acquired by CaixaBank, Fitch would expect
support to be forthcoming from its parent.
The acquisition is conditional on various factors, notably: EUR4.5bn of fresh
capital being injected into the bank by FROB; the transfer out of BValencia of
troubled real estate assets to the Sociedad de Gestion de Activos Procedentes de
la Restructuracion Bancaria (Sareb); the burden sharing by the existing
preference shareholders and subordinated debt holders and the regulatory
approvals being received by the European Competency Board. The acquisition is
expected to be completed by Q113 although full integration may take a little
longer, possibly subsequent to six months in the future.
BValencia's sale agreement also includes an asset protection scheme (APS)
granted to CaixaBank. FROB will absorb 72.5% of any losses arising from
BValencia's SME and off-balance sheet risk (mainly guarantees) portfolios over a
10-year period, should current reserves set aside to cover risks on these
portfolios prove inadequate.
RATING ACTION RATIONALE - VR
BValencia's VR has been affirmed at 'f'. Fitch believes the entity has failed
and would have defaulted had it not received extraordinary external support from
RATING DRIVERS AND SENSITIVITIES - IDRs, SR AND SUPPORT RATING FLOOR (SRF)
BValencia's IDRs and SR are sensitive to completion of the acquisition by
CaixaBank. Once the acquisition is completed, Fitch will resolve the rating
watches and BValencia's IDRs will be aligned with those of Caixabank. IDRs
assigned to BValencia will only remain in place until such time as BValencia
ceases to exist as a legal entity. Should this be the case, BValencia's IDRs, SR
and SRF will be withdrawn.
The Negative Outlook on CaixaBank's Long-term IDR of 'BBB' currently factors in
both the Negative Outlook on the Spanish sovereign ratings, and potential
pressure arising from the integration of Banca Civica earlier in 2012. In
Fitch's view, these risks are currently manageable. Once information is
available, Fitch will review the impact of the BValencia acquisition on
CaixaBank's ratings. Based on a preliminary analysis, the impact does not appear
to pose any sizeable concerns given apparently favourable acquisition terms.
However, Fitch will undertake a more exhaustive review once fuller details
RATING DRIVERS AND SENSITIVITIES - VR
Upon completion of the acquisition by CaixaBank, BValencia's VR will be
withdrawn at 'f'.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
BValencia's subordinated debt and preference shares have been affirmed at 'C'.
These instruments form part of the pre-acquisition loss sharing agreement, as
per the Memorandum of Understanding signed between Spain and the Eurogroup in
July 2012, supported by Royal Decree Law 24/2012. Upon completion of the burden
sharing, the ratings of BValencia's subordinated debt and preference shares will
be withdrawn in accordance with Fitch's criteria for distressed debt exchanges.
The rating actions are as follows:
Long-term IDR: 'BB-' revised to RWP from RWN
Short-term IDR: 'B' revised to RWP from RWN
Viability Rating: affirmed at 'f'
Support Rating: '3' revised to RWP from RWN
Support Rating Floor: 'BB-' removed from RWN
Subordinated debt: affirmed at 'C'
Preference shares: affirmed at 'C'
(Caryn Trokie, New York Ratings Unit)