December 20, 2012 / 2:21 PM / in 5 years

TEXT-Fitch places Banesto's subordinated debt & preferred stock on RWP on Santander deal

Dec 20 - Fitch Ratings has placed Banco Espanol de Credito’s (Banesto) subordinated debt of ‘BB+’ and preferred stock of ‘B’ on Rating Watch Positive (RWP) following the announcement on 17 December 2012 that Banesto will be absorbed by its parent, Banco Santander (Santander; ‘BBB+'/Negative). All other Banesto ratings are unaffected. A full list of rating actions is at the end of this comment.


The absorption is expected to close by May 2013 and, once Banesto ceases to exist as a separate legal entity, Fitch will transfer its debt instruments to Santander. Banesto’s Issuer Default Ratings (IDR), Viability Rating (VR) and Support Rating will be withdrawn at that time. As such, ratings assigned to Banesto’s subordinated debt and preferred stock will be based on Santander’s VR. VRs act as the anchor rating from which to notch subordinated and hybrid securities ratings. Santander’s VR is currently ‘bbb+', while Banesto’s is ‘bbb-'.

The RWP reflects Fitch’s view that these securities are likely to be upgraded by two notches upon the completion of the merger, as long as Santander’s current VR holds firm.

Banesto’s IDRs are based on support from its parent and are aligned with those of Santander and, as such, no rating action is required on these.


Banesto’s subordinated debt is rated one notch below its VR and its preferred stock is rated five notches below the VR in accordance with Fitch’s assessment of each instrument’s respective non-performance and relative loss severity risk profiles. As for all Spanish banks, the preference shares are notched twice for loss severity and three times for non-performance risk. Fitch believes the preferred stock has poor recovery expectations. Its loss absorption triggers are easily activated as coupons are suspended when the entity makes a loss in the previous accounting period and the missed coupons are non-cumulative.

The ratings of these instruments are primarily sensitive to any change in Banesto’s VR and to the completion of the merger with Santander. A rating action on Banesto’s or Santander’s VRs would be directly mirrored by a corresponding rating action on the instruments’ ratings.

The rating actions are as follows:


Long-term IDR: unaffected at ‘BBB+'; Outlook Negative

Short-term IDR: unaffected at ‘F2’

VR: unaffected at ‘bbb-’

Support Rating: unaffected at ‘2’

Senior unsecured rating: unaffected at ‘BBB+’

Short-term debt rating: unaffected at ‘F2’

Subordinated debt: ‘BB+’ placed on RWP

Preferred stock: ‘B’ placed on RWP

Market-linked senior unsecured securities: unaffected at ‘BBB+emr’

Mortgage covered bonds: unaffected

Banesto Financial Products plc :

Senior unsecured rating: unaffected at ‘BBB+’

Short-term debt rating: unaffected at ‘F2’

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