London, 21 November 2017 -- Moody's Investors Service today assigned a Baa2 rating and a stable outlook
to Principality Building Society's (Principality's) GBP300
million senior unsecured bond, which it plans to issue on 23 November
under its GBP1 billion senior unsecured MTN programme that Moody's
affirmed at (P)Baa2. Moody's also upgraded the long-term
counterparty risk assessment (CR assessment) of Principality to A2(cr)
from A3(cr) and upgraded the short-term CR Assessment to Prime-1(cr)
from Prime-2(cr). At the same time, the rating agency
affirmed all other long-term and short-term ratings (including
programmes). Principality's BCA and adjusted BCA of baa2
were unaffected by today's rating action.
The stable outlook on the long-term deposit rating was maintained.
A list of affected ratings is provided at the end of this press release.
RATINGS RATIONALE
The upgrade of the CR assessments reflects the increased subordination
protecting Principality's counterparty obligations following the
Building Society's GBP300 million senior unsecured debt issuance which
will be issued on 23 November 2017, resulting in a three-notch
uplift from the BCA of baa2 under Moody's advanced Loss Given Failure
(LGF) analysis. The senior unsecured debt issuance will provide
Principality with proceeds to fund further growth and enhance its liquidity
buffers.
CR Assessments are opinions of how counterparty obligations are likely
to be treated if a bank fails, and are distinct from debt and deposit
ratings in that they: (1) consider only the risk of default rather
than both the likelihood of default and the expected financial loss suffered
in the event of default; and (2) apply to counterparty obligations
and contractual commitments rather than debt or deposit instruments.
Our CR Assessment captures the probability of default on certain senior
obligations, rather than expected loss. Therefore,
we focus purely on subordination and take no account of the volume of
the instrument class.
The CR Assessment for Principality does not benefit from any government
support, in line with our support assumptions on the deposit ratings,
given its small balance sheet, lack of current accounts and low
systemic importance.
Moody's also affirmed Principality's Baa2 long-term local and foreign
currency deposit ratings. The deposit rating continues to reflect
(1) the Society's BCA of baa2; (2) moderate loss-given-failure
under the agency's forward-looking LGF analysis, taking into
account balance sheet growth expectations; and (3) a low probability
of government support.
The stable outlook on deposits, and the assignment of a stable outlook
to the senior unsecured bond, reflects Moody's expectation that
these liabilities will benefit from moderate loss-given failure
over the outlook period, based on the agency's forecast of the Society's
future liability structure and asset growth. The stable outlook
also reflects the rating agency's expectation that Principality's
broader performance will remain consistent with that of its current BCA
of baa2.
WHAT COULD CHANGE THE RATINGS -- UP
Principality's deposit and senior debt ratings could be upgraded if the
Society were to issue significant amounts of long-term debt and/or
subordinated long-term debt.
A positive change in the Society's BCA would likely also affect all ratings.
Principality's BCA could be upgraded as a result of a sustainable reduction
in market funding reliance, increased liquid resources, or
improvements to asset quality and profitability.
WHAT COULD CHANGE THE RATINGS -- DOWN
Principality's long-term senior unsecured debt and deposit ratings
could be downgraded in response to a reduction in the volume of debt or
deposits that could be bailed in, which would increase loss-given-failure
for these instruments.
A downward movement in the BCA of the Society would likely also result
in downgrades to all ratings. Principality's BCA could be downgraded
as a result of (i) a significant deterioration in its asset quality metrics;
(ii) a material weakening in profitability, which would reduce its
loss-absorption capacity; and (iii) a deterioration in the
Society's funding and liquidity position, including a reduction
in the quantity or quality of its liquidity buffer.
LIST OF RATINGS
Issuer: Principality Building Society
Upgrades:
....LT Counterparty Risk Assessment,
Upgraded to A2(cr) from A3(cr)
....ST Counterparty Risk Assessment,
Upgraded to P-1(cr) from P-2(cr)
Assignments:
....Senior Unsecured Regular Bond/Debenture,
Assigned Baa2 Stable
Affirmations:
....LT Bank Deposits, Affirmed Baa2,
Outlook Remains Stable
....ST Bank Deposits, Affirmed P-2
....Pref. Stock Non-cumulative,
Affirmed Ba2 (hyb)
....Senior Unsecured MTN Program, Affirmed
(P)Baa2
....Subordinate MTN Program, Affirmed
(P)Baa3
....Other Short Term Program, Affirmed
(P)P-2
Outlook Actions:
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies 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 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.
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.
Aleksander Henskjold
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
