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Rating Action:

Moody's places Hoist's Ba1 debt and issuer ratings on review for upgrade

03 May 2017

Action follows Hoist's announcement of an upcoming subordinated debt issuance

London, 03 May 2017 -- Moody's Investors Service has today placed on review for upgrade the ratings of Hoist Kredit AB (publ) (Hoist), including the company's Ba1/Not Prime long- and short-term issuer and Ba1 senior unsecured ratings, its senior unsecured and subordinated EMTN programme ratings of (P)Ba1 and (P)B1, as well as the short-term programme rating (P)NP. Concurrently, the rating agency has also affirmed Hoist's long- and short-term Counterparty Risk Assessment (CR Assessment) of Baa3(cr)/P-3(cr) and its ba3 baseline credit assessment (BCA) and adjusted BCA.

Today's rating action follows an announcement released by Hoist on 27 April 2017 indicating that the debt purchaser plans to issue new subordinated debt in the coming weeks. The review for upgrade reflects the rating agency's assessment of a high likelihood that the planned debt issuance will be sufficiently substantial to materially increase the loss absorption cushion available to creditors in the unlikely event of a failure.

The full list of the affected ratings and rating inputs can be found at the end of this press release.

RATINGS RATIONALE

REVIEW FOR UPGRADE

Moody's has placed the issuer and senior unsecured debt ratings of Hoist on review for upgrade to reflect the announced issuance of new subordinated debt and its potential impact on Moody's Loss Given Failure analysis.

While Hoist's funding plan states an intention to replace an existing subordinated debt with the newly planned issue under its EMTN programme, Moody's anticipates that the amount that will be raised in the coming weeks could well exceed the size of the company's current outstanding junior debt, which would provide a more substantial cushion of protection for creditors over the coming years in the event of failure. Hoist, along with other Swedish financial institutions, is subject to a bail in regime under Bank Recovery and Resolution Directive.

The review process will focus on the specific size of the placement in the context of Hoist's overall liability structure, along with the rating agency's assessment of its sustainability over the longer term, taking into account the pace of growth anticipated at Hoist over that time horizon.

AFFIRMATION OF BCA AND ADJUSTED BCA

The affirmation of Hoist's ba3 BCA is underpinned by its balanced fundamental performance, with solid retail deposit-funded profile, large liquidity base and sound capitalization. However, this is against the backdrop of a monoline business model, modest profitability and its inherently risky portfolio of acquired non-performing loans.

Moody's views Hoist's funding as a key ratings strength, with a large deposit base, albeit formed by the more risky internet deposits, forming 62% of the total balance sheet as of March 2017. This compares favourably with other debt purchasers which are traditionally wholesale funded. In addition, Hoist maintains a strong and relatively stable liquidity buffer which accounts for 30% of total assets at the end of the first quarter 2017, giving Hoist flexibility to acquire debt portfolios without having to seek additional financing. Hoist's sound capitalization has been increasing and the company's tangible common equity to risk-weighted assets reached 16% while leverage (measured by tangible common equity to total assets) reached 14% as of year-end 2016 (from 10.8% and 8.1%, respectively in 2014), and is stronger than both rated Swedish banks and other European debt purchasers.

These strengths are counterbalanced by Hoist's monoline business model, where around 90% of the company's revenues are generated by its debt purchasing business. Although Hoist acquires the non-performing loan portfolios at a significant discount, allowing for higher recovery potential, they remain speculative in nature. The main risks associated with these acquisitions are related to (1) their valuation and model pricing, (2) concentration of suppliers (loan originators or vendors), and (3) possible litigation or other legislative actions. Hoist's profitability lags behind other debt purchasers, which is party mitigated by higher earnings stability. Nonetheless, the company's return on average assets has shown some improvement to 2.3% in 2016, compared to 1.4% in 2015.

-- WHAT COULD MOVE THE RATINGS UP/DOWN

Hoist's issuer and senior debt ratings, as well as programme ratings could be upgraded by one notch if the company significantly increases the size of its subordinated debt and Moody's assesses that the significantly enhanced cushion for creditors will be maintained in a stable way over time. Although not currently anticipated, Hoist's BCA could be upgraded if the company: (1) significantly improves its profitability on a sustained basis without increasing earnings volatility; (2) increases capital targets and demonstrates ability to maintain high capital levels; and/or (3) diversifies its business model.

The company's BCA could be downgraded if : (1) Hoist materially increases its market funding reliance; (2) it experiences a protracted decrease in profitability or in its solvency ratios; and/or (3) its asset quality deteriorates. A downward movement in Hoist's BCA would likely result in a downgrade of all ratings.

LIST OF AFFECTED RATINGS

Issuer: Hoist Kredit AB (publ)

Placed on review for upgrade:

....LT Issuer rating (Foreign Currency), currently Ba1, outlook changed to Rating Under Review from Stable

....ST Issuer rating (Foreign Currency), currently Not Prime

....Senior Unsecured rating (Foreign Currency), currently Ba1, outlook changed to Rating Under Review from Stable

....Senior Unsecured MTN rating (Foreign Currency), currently (P)Ba1

....Other Short Term rating (Foreign Currency), currently (P)Not Prime

....Subordinated MTN rating (Foreign Currency), currently (P)B1

Affirmed:

....Baseline Credit Assessment, affirmed ba3

....Adjusted Baseline Credit Assessment, affirmed ba3

....Long-term Counterparty Risk Assessment, affirmed Baa3(cr)

....Short-term Counterparty Risk Assessment, affirmed Prime-3(cr)

Outlook Action:

....Outlook changed to Rating Under Review from Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. 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.

Louise Lundberg
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service Limited, Stockholm Branch
Krejaren 2
Ostermalmstorg 1
Stockholm 114 42
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
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

No Related Data.
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