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Rating Action:

Moody's assigns A2 to DeltaCredit's planned series 08-IP senior secured debt issuance; negative outlook (Russia)

30 Mar 2011

Moscow, March 30, 2011 -- Moody's Investors Service has today assigned an A2 long-term global local currency (GLC) debt rating with a negative outlook to the upcoming local currency senior secured debt instrument that will be issued by Bank DeltaCredit ("DeltaCredit", rated Baa2/Prime-2/D, negative outlook):

- RUB5 billion Series 08-IP Senior Secured Regular Bond with a maturity of 1,820 days

The debt issue is secured by a pool of mortgage loans and benefits from an explicit and irrevocable guarantee provided by Société Générale Group (rated Aa2/Prime-1/C+, negative outlook). The latter owns a 74.89% stake in DeltaCredit's immediate parent, Rosbank (rated Baa3/Prime-3/D, positive outlook), which, in turn, controls 100% of DeltaCredit. The assigned debt rating carries a negative outlook, which is in line with the negative outlook on the guarantor's rating.

RATINGS RATIONALE

Moody's explains that DeltaCredit's assigned debt rating is in line with Société Générale's Baseline Credit Assessment (BCA) of A2, which is based on the latter's C+ bank financial strength rating (BFSR). The new rating carries a negative outlook, which is in line with the negative outlook on Société Générale's BFSR. Moreover, the rating is not constrained by Russia's local currency debt ceiling of A1.

The bonds are being issued in accordance with the Russian legislation on mortgage-backed securities. The terms and conditions of the issue provide for semi-annual coupon payments, with the coupon rate to be defined by the issuer with reference to market conditions. The bond issue may incorporate a put option. Moody's notes that the deal structure does not provide for the allocation of the bonds by senior and/or junior tranches.

Moody's further explains that the A2 rating assigned to DeltaCredit's bonds is underpinned by an explicit and irrevocable guarantee issued by Société Générale Group, covering both the principal and coupon payments due on the bonds. The rating agency adds that it has given limited consideration to the underlying collateral pool of the bond issue being rated; therefore, the ratings for the mortgage-secured bonds are based on the fundamental credit quality of the issuer (DeltaCredit) and guarantor (Société Générale). As a result, the A2 rating assigned by Moody's to DeltaCredit's mortgage-secured bonds is in line with Société Générale's BCA of A2.

If the obligations under the bond issue are not honoured in full by the issuer and/or the guarantor, the claims of the bondholders will be imposed on the mortgage collateral. Moody's understands that the claims of the bondholders for any remaining amount that is not covered in full by the proceeds of the respective mortgage collateral will continue to rank pari passu with other senior unsecured creditors.

According to Moody's, DeltaCredit's BFSR of D -- mapping to a BCA of Ba2 -- is underpinned by (i) its visible position in the Russian mortgage market; (ii) its strict approach to credit underwriting and modest risk appetite, resulting in satisfactory asset quality to date; (iii) its good financial performance and favourable cost efficiency metrics; and (iv) adequate economic capitalisation, while future capitalisation prospects are backed by the financial power of Société Générale.

At the same time, Moody's cautions that DeltaCredit's stand-alone ratings are constrained by (i) the bank's still modest franchise value and the limitations on further expansion of the Russian mortgage market in the foreseeable future, as a result of the current volatile economic conditions; (ii) the elevated -- compared to the normal economic cycle -- level of problem loans pending resolution through court proceedings and the repossession of mortgage properties; and (iii) the high dependence of its business model on funding from the parent, coupled with the lack of alternative sources of long-term financing.

DeltaCredit's long-term deposit rating of Baa2 (with negative outlook) benefits from a three-notch uplift from the bank's BCA of Ba2, in line with Moody's assessment of the very high probability that the bank's ultimate parent -- Société Générale -- will provide support to its Russian subsidiary in case of distress. DeltaCredit's short-term local currency deposit rating of Prime-2 is mapped from the bank's long-term GLC deposit rating. No systemic support is factored into the bank's ratings.

PREVIOUS RATING ACTION & METHODOLOGY USED

Moody's previous rating action on DeltaCredit was the assignment of A2 long-term global local currency debt ratings with a negative outlook to the bank's two planned issues of senior secured regular bonds -- the RUB5 billion Series 06 and the RUB5 billion Series 07 -- each with a maturity of 1,820 days.

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

Headquartered in Moscow, Russia, DeltaCredit reported -- under local GAAP (unaudited) -- total assets of RUB53.0 billion as at 31 December 2010 and net profits of RUB1.9 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Moscow
Olga Ulyanova
Asst Vice President - Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Eastern Europe LLC
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Moody's assigns A2 to DeltaCredit's planned series 08-IP senior secured debt issuance; negative outlook (Russia)
No Related Data.
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