New York, January 26, 2016 -- Moody's Investors Service has affirmed the ratings of Huntington Bancshares
Incorporated and its subsidiaries, including Huntington National
Bank (collectively Huntington). This action follows the announcement
that Huntington has agreed to acquire FirstMerit Corporation in a stock
and cash transaction expected to close in the third-quarter 2016.
Huntington National Bank is rated Aa3 and Prime-1 for long-
and short-term bank deposits, respectively, A3 for
senior unsecured debt, and Baa1 for subordinated debt. It
has a standalone baseline credit assessment (BCA) of a3, adjusted
BCA of a3, and long-term counterparty risk (CR) assessments
of A2(cr)/Prime-1(cr). Huntington Bancshares Incorporated
is rated Baa1 for senior unsecured and subordinated debt and Baa3 (hyb)
for noncumulative preferred stock.
In a related action, the long-term ratings of FirstMerit
Corporation were placed on review for downgrade including its A3 issuer
and subordinated debt ratings and its Baa2(hyb) noncumulative preferred
stock rating. Moody's also placed the A3 subordinated debt
of its lead bank subsidiary, FirstMerit Bank, N.A.,
on review for downgrade, as well as its standalone BCA of a2,
adjusted BCA of a2, and long-term CR assessment of A1(cr).
FirstMerit Bank's long- and short-term bank deposit
ratings of Aa3 and Prime-1, respectively, its A3 issuer
rating, and its short-term CR assessment of Prime-1(cr)
were affirmed.
RATINGS RATIONALE
Moody's said its affirmation of Huntington's standalone BCA
of a3 reflects its view that the acquisition of FirstMerit is unlikely
to weaken its financial profile. Both Huntington and FirstMerit
benefit from good asset quality and liquidity which will be enhanced by
a strengthened deposit base. Additionally, FirstMerit's
current creditworthiness is superior to Huntington's, resulting
in a standalone BCA that is one notch above that of Huntington.
This transaction weakens Huntington's credit standing in one key
aspect - Huntington's capital ratios will decline upon close
of the acquisition, but Moody's expects its capital levels
to improve in 2016 and 2017.
Moody's also affirmed the debt and deposit ratings of Huntington.
Huntington's senior bank-level debt is rated A3, the same
level as its BCA. The debt affirmation was a result of 1) the affirmation
of Huntington's a3 BCA and 2) the bank's anticipated funding
structure, which is an important component of the rating agency's
advanced Loss Given Failure (LGF) framework, a feature of its bank
rating methodology. After the acquisition, Moody's
expects that Huntington will increase its level of unsecured long-term
debt to tangible assets such that it maintains its current above-average
level. This results in bank deposits being rated three notches
higher than the BCA, at Aa3, compared to a two-notch
uplift for deposits at most US regional banks. It also results
in Huntington's bank senior debt being rated at the same level as
the BCA, at A3, compared to being one notch lower than the
BCA as in the case of most US regional banks.
Moody's believes that after the acquisition is completed,
FirstMerit's holding company and bank will merge into Huntington's
holding company and bank, respectively. As such, Moody's
expects to change FirstMerit's ratings to match those of Huntington
at that time.
WHAT COULD CHANGE THE RATING UP
For Huntington, stronger capital ratios, improved core earnings
and consistently superior credit metrics relative to like-rated
peers could lead to positive movement in the BCA, although we do
not see this occurring in the next 12-18 months.
In light of the pending merger with Huntington and given the current ratings
review, we see no upward pressure on FirstMerit's ratings
at this time.
WHAT COULD CHANGE THE RATING DOWN
For Huntington, the BCA could move down if the company does not
restore its capital following the acquisition of FirstMerit or if there
are missteps in the integration. Negative pressure could also develop
if we believe that Huntington's above-average loan growth in certain
portfolios is characterized by weaker underwriting, thereby making
asset quality more susceptible to deterioration. In addition,
Huntington's deposit and bank senior debt ratings could be downgraded
if it does not maintain an above-average level of unsecured long-term
debt to tangible assets under Moody's LGF analysis.
For FirstMerit, when the acquisition closes Moody's expects
to downgrade its BCA and long-term debt ratings. We expect
the deposit rating and issuer rating of the bank to be affirmed.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
On Review for Downgrade:
..Issuer: FirstMerit Corporation
.... Issuer Rating, Placed on Review
for Downgrade, currently A3
....Preferred Stock Non-cumulative,
Placed on Review for Downgrade, currently Baa2(hyb)
....Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A3
..Issuer: FirstMerit Bank, N.A.
.... Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently a2
.... Baseline Credit Assessment, Placed
on Review for Downgrade, currently a2
.... Counterparty Risk Assessment, Placed
on Review for Downgrade, currently A1(cr)
....Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A3
Affirmations:
..Issuer: Huntington Bancshares Incorporated
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa1
....Subordinate Medium-Term Note Program
, Affirmed (P)Baa1
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Subordinate Shelf, Affirmed (P)Baa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
....Pref. Stock Non-cumulative
Preferred Stock, Affirmed Baa3(hyb)
..Issuer: Huntington National Bank
....Baseline Credit Assessment, Affirmed
a3
....Adjusted Baseline Credit Assessment,
Affirmed a3
....Counterparty Risk Assessment, Affirmed
A2(cr), P-1(cr)
....Bank Deposit Rating, Affirmed Aa3,
P-1
....Issuer Rating, Affirmed A3
....Senior Unsecured Bank Note Program,
Affirmed (P)A3
....Subordinate Bank Note Program, Affirmed
(P)Baa1
....Short-Term Bank Note Program,
Affirmed (P)P-2
....Senior Unsecured Regular Bond/Debenture,
Affirmed A3
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
..Issuer: Huntington Bancshares Capital Trust I
....Preferred Stock, Affirmed Baa2(hyb)
..Issuer: Huntington Capital II
....Preferred Stock, Affirmed Baa2(hyb)
..Issuer: FirstMerit Bank, N.A.
....Short-Term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Bank Deposit Rating , Affirmed Aa3,
P-1
....Issuer Rating, Affirmed A3
Outlook Actions:
..Issuer: Huntington Bancshares Incorporated
....Outlook, Remains Stable
..Issuer: Huntington National Bank
....Outlook, Remains Stable
..Issuer: FirstMerit Corporation
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: FirstMerit Bank, N.A.
....Outlook, Remains Stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Joseph Pucella
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Huntington (senior Baa1) and reviews FirstMerit (senior A3) for downgrade
