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Rating Action:

Moody's assigns Ba1(hyb) rating to Atradius' dated subordinated notes

04 Sep 2014

London, 04 September 2014 -- Moody's Investors Service has today assigned a Ba1(hyb) rating to the subordinated notes to be issued by Atradius Finance B.V. and guaranteed by Atradius N.V. ("Atradius").

Atradius Finance B.V. is a financing company of Atradius and its subsidiaries ("the Atradius Group"). Atradius N.V. is the holding company of the Atradius Group, the second largest global credit insurer, based in the Netherlands.

The Ba1(hyb) rating of the notes is based on the expectation that there will be no material difference between current and final documentation. The proceeds of the notes are expected to be on-lent to Atradius on the same interest, repayment and subordinated terms applicable to those of the notes.

RATINGS RATIONALE

Moody's stated that the Ba1(hyb) rating assigned to the subordinated notes is driven by 1)- the unconditional and irrevocable guarantee provided by Atradius on a subordinated basis, 2)- standard notching for debt issued or guaranteed from insurance holding companies for subordinated debt that lacks a mandatory trigger we consider to be "meaningful", and 3)- our existing A3 insurance financial strength rating ("IFSR") on the main operating insurance companies of the Atradius group (including Atradius Credit Insurance N.V., Credito y Caucion Seguros y Reaseguros S.A, Atradius Reinsurance Ltd. and Atradius Trade Credit Insurance Inc.).

The new notes issue is a dated subordinated notes issue with a maturity of 30 years, callable after 10 years. It will rank junior to senior debts and pari-passu with other subordinated obligations of the issuer and its guarantor, Atradius. Atradius' existing EUR120million subordinated notes were called on the 3rd of September, 2014.

The new instrument allows the issuer to optionally defer interest payment on any interest payment date if no dividend on any class of shares was declared or paid or any class of shares was repurchased (subject to certain exceptions) during the previous 6-month period, and contains a mandatory interest deferral trigger, notably based upon breach of solvency requirements. The terms of the notes explicitly state that the trigger will be based on the consolidated Solvency II capital requirements of the Atradius group when the Solvency II regulations are activated. However, any deferred interest payment, optional or mandatory, will constitute arrears of interest and remains payable by Atradius at a future date (cumulative coupon deferral mechanism).

The notes are intended to qualify as Tier 2 capital under Solvency II for Atradius. The documentation of the notes also allows Atradius to substitute or vary the terms of the securities under certain circumstances, including the situations where, as a result of change in regulation, the instrument would no longer fully qualify as regulatory capital under Solvency I, and if the newly issued instrument would not comply with the Tier 2 own funds eligibility criteria under Solvency II or would not be entirely recognized as Tier 2 capital under the grandfathering provisions of the new solvency framework for the Guarantor or the group to which it belongs. Nonetheless, Moody's believes that the terms cannot be changed in a way that is materially adverse to the investor.

The proceeds of the notes will be used by Atradius for general corporate purposes. The notes will receive some equity credit from Moody's in its financial leverage calculation based on the notes subordination, optional and mandatory deferral of interest on a cumulative basis, and maturity. As a result of the notes issuance, we expect financial leverage to deteriorate to some extent from year-end levels (YE 2013: 22%) but remain in levels fully commensurate for the current A3 IFSRs.

Moody's A3 insurance financial strength ratings on Atradius' main operating companies reflect the group's very strong position in the credit insurance industry, a conservative investment portfolio, geographic diversification, good capitalisation, substantial reinsurance protection and low financial leverage. These strengths are offset by the Group's limited business diversification from credit insurance, inherently a cyclical industry vulnerable to sharp deteriorations in the economic environment, and the highly competitive environment in the credit insurance industry as a whole. In addition, although Atradius is well diversified by country, its largest exposure is Spain and Portugal at around 17% of the group's exposure at year-end 2013, of which Spain is the vast majority, notwithstanding the significant reductions in recent years (down by 10% from 2012 levels and by nearly 50% from levels in 2008).

Atradius is 83% owned by Grupo Catalana Occidente (GCO, unrated), a Spain-based listed insurance group that owns retail domestic insurance operations as well as credit insurance. Atradius' A3 IFSR reflects its standalone fundamentals, the partial insulation from its parent --mainly driven by its different business profile and the regulatory protection that Atradius' main operations receive- and our expectation that GCO remains committed to maintain Atradius at well capitalized levels. Atradius represented circa 37% of GCO's pro-forma revenues at year-end 2013.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's says that as the rating of Atradius' subordinated debt is notched down from the A3 IFSRs of the main operating companies; any change in Atradius' IFSRs will likely translate into a similar change in the ratings of the subordinated debt.

Upward pressure on the IFSRs could develop following:

(1) material improvement in the group's business diversification with fee-based services representing over 25% of the group's revenues and services;

(2) sustainable improvements in underwriting profitability through the cycle

(3) substantial improvements in the group's business profile such as significant reduction in policies with restrictive features in a downturn scenario (e.g. multiyear policies) or reduction in the group's still-significant exposure to European peripherals

Downward pressure on the IFSRs could develop following:

(1) material deterioration in Atradius' underwriting profitability, with a 5-year combined ratio consistently above 100% through the cycle;

(2) significant deterioration in the group's capitalisation, with net total exposure to shareholders equity above 300x and net underwriting leverage above 170%;

(3) substantial weakening in the group's franchise position

RATING LIST

The following rating has been assigned with a stable outlook:

Atradius Finance B.V. -subordinated debt rating at Ba1(hyb).

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Moody's Rating Methodology for Global Trade Credit Insurers published in July 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Laura Perez Martinez
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns Ba1(hyb) rating to Atradius' dated subordinated notes
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