Dec 18 - Synovus Financial Corporation's (SNV) recently announced
$530 million bulk loan sale of distressed assets has no immediate impact on its
current ratings, according to Fitch Ratings. While the agency recognizes the
positive nature of management's continued efforts to lower the level of problem
assets through dispositions, Fitch expects nonperforming assets (NPAs) to remain
elevated in both absolute terms and relative to others in its peer group.
On Dec. 13, 2012, Synovus announced the sale of $400 million NPAs along with
$110 million accruing substandard loans and $20 million of special mention
loans. The company will take $155 million pre-tax charge related to the sale or
30% of carrying value. Fitch notes that many of the NPAs had likely already been
written down from their respective unpaid balance. However, this appears to be
an improvement from SNV's last outsized NPA sale in the fourth quarter of 2010
(4Q'10) when it sold $573 million of assets with a 40% loss rate.
Fitch affirmed SNV's ratings in June 2012 reflecting modest improvements in
asset quality and reduction in refinancing risk at the holding company as a
result of the senior notes issuance. The Rating Outlook remained Negative due to
a continued, uncomfortably high level of NPA and construction and land
development loans. Further, Fitch noted that the memorandum of understanding
(MOU) with regulators was still in place.
Fitch anticipates that SNV will continue its strategy of parceled nonperforming
loan sales as market conditions warrant and that loss rates on respective sales
will mirror those of most recent ones. However, Fitch believes NPA levels will
remain elevated in the near to mid-term given SNV's high volume of accruing TDRs
and sustained level of NPA inflows quarter to quarter. Fitch estimates that as a
result of the announced bulk sale, NPAs will be just north of 6%, a noticeable
improvement from previous quarters but still considerably higher than most other
institutions of similar size to SNV. Moreover, the MOU is remains in place and
continues to be a negative rating driver.
Additional information is available at www.fitchratings.com.