MOODY'S LOWERS DEBT RATINGS OF SOVEREIGN BANCORP (SENIOR TO Ba3 FROM Ba1) AND SUBSIDIARIES.
New York, November 09, 1999 -- Moody's Investors Service lowered the debt ratings of Sovereign Bancorp (senior to Ba3 from Ba1) and its subsidiaries. The downgrades were in response to the proposed higher leverage that the corporation is willing to accept in acquiring the deposits and assets divested in the Fleet/BankBoston merger. Moody's added that the proposed increased leverage lessens the protection against financial disappointments that are possible in the process of merging the acquired businesses into those of Sovereign Bancorp. Such challenges include retaining the deposit base that it intends to purchase and successfully merging the servicing operations of the acquired businesses.
The proposed financing of the acquisition will result in very high double leverage at the holding company. As a result, its interest obligations will rely on sizable dividends from the operating thrift. Such a structure makes the corporation's creditors more vulnerable to disruptions in business performance, and limits the financial flexibility of the operating thrift.
The following rating changes incorporate the fact that existing senior unsecured notes will be secured by stock of Sovereign Bank assuming Sovereign Bancorp Inc. obtains a secured bank credit facility of $500 million.
The following ratings were lowered:
Sovereign Bancorp Inc. -- senior notes to Ba3 from Ba1; subordinated debt to B1 from Ba3; junior subordinated debt to B2 from Ba3; cumulative preferred stock to "b1" from "ba2"; senior shelf to (P)Ba3 from (P)Ba1; subordinate shelf to (P) B1 from (P)Ba2; cumulative preferred shelf to (P)"b1" from (P)"ba2"; and non cumulative preferred shelf to (P)"b2" from (P) "ba3".
Sovereign Bank -- rating on the bank for long-term deposits to Baa3 from Baa2; rating on the bank for short-term deposits to Prime-3 from Prime-2; issuer rating on the bank including other senior obligations to Ba1 from Baa3.
Sovereign Capital Trust I -- trust preferred to "b1" from "ba2".
The following ratings were assigned:
Sovereign Bancorp Inc. -- Ba3 on the senior secured bank facility; Ba3 on senior unsecured debt; and B2 on junior subordinated debt.
Soverign Capital Trust II -- "b1" on convertible trust preferred.
Sovereign Bancorp Inc.'s principal executive offices are located in Philadelphia, Pennsylvania. The company's assets were $25 billion at September 30, 1999.
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