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Fitch Expects to Rate Caixa's Proposed Subordinate Notes 'BB+'
July 8, 2014 / 4:32 PM / 3 years ago

Fitch Expects to Rate Caixa's Proposed Subordinate Notes 'BB+'

(The following statement was released by the rating agency) RIO DE JANEIRO, July 08 (Fitch) Fitch Ratings has assigned an expected long-term rating of 'BB+(EXP)' to Caixa Economica Federal's (Caixa) proposed subordinate securities. The expected ratings are two notches below Caixa's long-term Issuer Default Rating (IDR) of 'BBB'. The final rating is contingent upon the receipt of final documents conforming to the information already received. The proposed subordinate notes will have a maturity of 10 years, and can be called by Caixa after five years, subject to the prior approval of the Central Bank of Brazil. They are unsecured, subordinated to senior debt and rank senior to Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) capital. Coupons are not deferrable. They have a full and permanent write-down feature, which will be triggered if Caixa's CET1 capital falls below 4.5% of RWA or if the Central Bank determines that the notes should be written-off. Caixa expects to qualify these securities as Tier 2 (T2) capital in accordance with Resolution 4192, subject to the Central Bank of Brazil's approval. Under the proposed terms, these subordinate notes will not receive any equity credit from Fitch for the purposes of assessing capital adequacy. KEY RATING DRIVERS The expected rating of the subordinate notes is two notches below Caixa's long-term foreign currency Issuer Default Rating (IDR) 'BBB'. The notching is driven by the expected high loss severity of the notes. No notching for nonperformance is applied, because coupons are not deferrable and the write-down trigger is close to the point of non-viability. As a result, Fitch believes that the nonperformance risk is not material from the rating perspective. In addition, as Caixa is a fully government owned domestic systemically important bank, it would likely receive owner (i.e. government) support before the loss absorption features of the notes are triggered. This also explains why the anchor rating for the notes' rating is Caixa's IDR. Caixa's long-term foreign and local currency IDRs are equal to Brazil's sovereign rating and driven by support from the federal government. They reflect full ownership by the federal government, its systemic importance, and the role it plays in the implementation of government economic programs. Fitch believes the probability of support by the government would be high should it be required. Fitch's base case projections do not take into consideration any potential change in government support nor a potentially negative decision by the Brazilian Supreme Court regarding the constitutionality of the monetary correction indices applied to certain savings deposits in the past decades. An unfavorable decision would likely pressure Caixa's capital and, possibly, its liquidity, depending on the specifics of the ruling's outcome. RATING SENSITIVITIES Caixa's IDR and issue ratings would be affected by potential changes in the sovereign ratings and/or its shareholder's willingness to provide support. As long as there is no change in the propensity of support, the rating of these subordinate notes will typically remain two notches below Caixa's long-term IDR. Fitch currently rates Caixa as follows: --Foreign and local currency long-term IDRs 'BBB', Outlook Stable; --Foreign and local currency short-term IDRs 'F2'; --Support rating '2'; --Support rating floor 'BBB'; --National long-term rating 'AAA(bra)', Outlook Stable; --National short-term rating 'F1+(bra)'; --Foreign currency long-term rating of senior unsecured USD notes maturing in 2017, 2018, 2019 and 2022 'BBB'. Contact: Primary Analyst Esin Celasun Director +55-21-4503-2626 Fitch Ratings Brasil Ltda. Praca XV de Novembro 20- 401 B, Rio de Janeiro, RJ, Brazil Secondary Analyst Maria Rita Goncalves Senior Director +55-21-4503-2621 Committee Chairperson Alejandro Garcia Senior Director +52-81-8399-9146 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information available at ''. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Jan. 31, 2014); --'Assessing and Rating Bank Subordinated and Hybrid Securities' (Jan. 31, 2014); --'Fitch's Approach for Basel III Hybrids in Brazil' (Mar. 24, 2014); --'Caixa Economica Federal: Improved Capital Alleviates Likely Pressure from Expected Credit Cost Rise' (May 21, 2014); -- 'Fitch Affirms Banco do Brasil, Banco Votorantim and Caixa Economica Federal's IDRs' (July 3, 2014). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Fitch’s Approach for Basel III Hybrids in Brazil (Recent Regulatory Changes Lead to Wider Notching, but also to Some Equity Content) here Caixa EconÃ_tmica Federal (Improved Capital Alleviates Likely Pressure from Expected Credit Cost Rise) 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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