Upgrade prompted by changes in the group's liability structure, resulting in lower loss given failure for bondholders
London, 21 December 2016 -- Moody's Investors Service has today upgraded the long-term
issuer rating and senior unsecured ratings of Santander UK PLC (SAN UK)
to Aa3 from A1. The outlook on the issuer and senior unsecured
ratings has been changed to negative from stable. SAN UK's
a3 standalone baseline credit assessment (BCA), its Aa2(cr)/Prime-1(cr)
Counterparty Risk Assessment and its other long and short term ratings
were unaffected by today's rating action.
The rating upgrades were prompted by Moody's assessment that SAN
UK's senior unsecured creditors face a lower loss given failure
as a result of SAN UK's issuance of loss-absorbing capital
that has occurred to date. However, in Moody's view,
negative pressures continue to weigh down on SAN UK's standalone
credit profile, which are reflected in the negative ratings outlook
on SAN UK.
For a full list of affected credit ratings please see below.
RATINGS RATIONALE
RATIONALE FOR THE SENIOR UNSECURED RATINGS
The upgrade of SAN UK's issuer and senior unsecured ratings to Aa3
from A1 are based upon the bank's BCA of a3 and the results of Moody's
Advanced Loss Given Failure (LGF) Analysis.
Taking account of the group's consolidated balance sheet structure
at end-September 2016 and its near term funding plan, the
agency's LGF analysis indicates that SAN UK's senior unsecured debt,
issued at bank level, is now likely to face very low loss-given-failure,
due to the loss absorption provided by its own volume and the amount of
debt subordinated to it. This results in a Preliminary Rating Assessment
(PRA) of a1 for senior unsecured debt, two notches above the BCA.
This is higher than under the previous analysis, which was based
on end-2015 data and resulted in a PRA of a2, because the
group has since issued significant unsecured debt from its holding company,
adding further loss absorbency below bank level senior unsecured creditors.
Moody's believes that the probability of government support for SAN UK's
senior unsecured debt remains moderate given its large balance sheet of
systemic significance in the UK, resulting in uplift of one notch
and a long-term issuer rating of Aa3.
RATIONALE FOR THE OUTLOOK
The negative outlook on the long-term issuer and senior unsecured
ratings reflects Moody's view that its expectation of a prolonged
period of uncertainty for the UK following the outcome of the UK referendum
will have negative implications for the country's medium-term
growth outlook and could result in a more challenging environment for
the bank, weaker operating profitability and some deterioration
in asset quality metrics.
WHAT COULD CHANGE THE RATINGS UP/DOWN
SAN UK's long-term issuer and senior unsecured ratings would
be upgraded in the event of an upgrade of the BCA. This could be
triggered by: (1) a structural reduction in its reliance on market
funding; (2) continued strong asset quality despite growth in its
SME lending portfolio; and (3) continued improvement in its solvency
profile through material internal capital generation. The rating
could also be upgraded if the group were to issue significant amounts
of subordinated debt, or long-term senior holding company
debt.
Santander UK's long-term issuer rating would be downgraded
in the event of a downgrade of the BCA. This could be triggered
by: (1) a significant deterioration in its asset quality metrics;
(2) a material weakening in profitability, which would reduce the
bank's going concern loss-absorption capacity; and (3) a deterioration
in the bank's funding and liquidity position, including a further
reduction in the quantity or quality of its liquidity buffer. The
rating could also be downgraded due to a reduction in more subordinated
debt or senior long-term holding company debt, which would
increase its loss-given-failure.
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.
List of affected ratings
Upgrades:
..Issuer: Santander UK PLC
.... Issuer Rating, Upgraded to Aa3
Negative from A1 Stable
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Aa3 Negative from A1 Stable
....Senior Unsecured MTN, Upgraded to
(P)Aa3 from (P)A1
....Senior Unsecured Shelf, Upgraded
to (P)Aa3 from (P)A1
..Issuer: Abbey National Treasury International Ltd.
.... BACKED Senior Unsecured MTN, Upgraded
to (P)Aa3 from (P)A1
..Issuer: Abbey National Treasury Services plc
.... BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to Aa3 Negative from A1 Stable
.... BACKED Senior Unsecured MTN, Upgraded
to (P)Aa3 from (P)A1
.... Senior Unsecured Shelf, Upgraded
to (P)Aa3 from (P)A1
.... BACKED Senior Unsec. Shelf,
Upgraded to (P)Aa3 from (P)A1
..Issuer: Alliance & Leicester plc
.... LT Issuer Rating, Upgraded to Aa3
Negative from A1 Stable
Outlook Actions:
..Issuer: Santander UK PLC
....Outlook, Changed To Negative From
Negative(m)
..Issuer: Abbey National Treasury International Ltd.
....Outlook, Changed To Negative From
Stable
..Issuer: Abbey National Treasury Services plc
....Outlook, Changed To Negative From
Negative(m)
..Issuer: Alliance & Leicester plc
....Outlook, Changed To Negative From
Negative(m)
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.
Dany Castiglione
Vice President - Senior 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
Nicholas Hill
MD - Banking
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
