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Rating Action:

Moody's upgrades immigon portfolioabbau to Ba1 from B1; outlook stable

19 Jun 2017

Baseline credit assessment upgraded to ba3, reflecting strong progress in wind-down

Frankfurt am Main, June 19, 2017 -- Moody's Investors Service has today upgraded by three notches the long-term deposit, senior unsecured debt and issuer ratings of immigon portfolioabbau ag (immigon) to Ba1 from B1 and affirmed the short-term Not Prime deposit ratings and (P)Not Prime programme ratings. Concurrently, the rating agency upgraded the wind-down entity's standalone baseline credit assessment (BCA) and its Adjusted BCA to ba3 from caa1 and its Counterparty Risk Assessments (CR Assessment) to Baa3(cr)/Prime-3(cr) from B1(cr)/Not Prime(cr). The outlook on the long-term deposit, senior unsecured and issuer ratings is stable.

Furthermore, Moody's has upgraded immigon's senior subordinate and subordinate ratings to Ba3 from Caa1, while immigon's non-cumulative preferred stock rating which continues to be rated on an expected loss basis was confirmed at C(hyb) reflecting an unchanged expected loss severity.

In addition, hybrid capital instruments issued by OEVAG Finance (Jersey) Limited and Investkredit Funding Ltd were upgraded to Caa1(hyb) from C(hyb) reflecting an improved expected recovery for these liabilities of 90%-95% from less than 35% previously.

The upgrade of several long-term ratings of immigon follows the positive impact from Moody's reassessment of the company's progress in its wind-down process and reflects: i) immigon's standalone financial profile, which now operates with improved capital and substantial liquidity buffers; and ii) the protection offered to creditors more senior in the creditor hierarchy, as captured by Moody's Advanced Loss-Given-Failure (LGF) liability analysis in light of immigon's significant deleveraging.

The stable outlook on immigon's long-term ratings reflects Moody's expectation that immigon can achieve its target to economically wind itself down by end-2017.

The rating action concludes the review for upgrade on immigon's hybrid capital instruments which was initiated on 30 January 2017.

Moody's will then subsequently withdraw immigon's long- and short-term deposit ratings at Ba1/Not Prime. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

-- IMPROVEMENT OF IMMIGON'S STANDALONE BCA REFLECTS BETTER RESILIENCE TO SHOCKS DURING THE WIND-DOWN PROCESS

The upgrade of immigon's standalone BCA by four notches to ba3 reflects the entity's reduced tail risks, and improved capital and liquidity following the accelerated wind-down of assets during 2016. Compared to its end-2015 balance sheet -- when immigon reported total assets of EUR3.4 billion and a capital cushion of EUR330 million of shareholder's equity (under local accounting regime) -- immigon's assets declined to EUR2.0 billion, while its equity capital improved to EUR420 million. The reduction in assets reflects the disposal of subsidiaries, affiliated companies, and performing and non-performing loans. The company's improved capital cushion reflects the positive effect from voluntary buyback programs for subordinated and non-subordinated liabilities and the reversal of loan-loss provisions, key drivers for immigon's positive net income of EUR91 million for 2016 (2015: EUR305 million).

In Moody's view, the likelihood has further increased that immigon can achieve its target to economically wind-down its remaining assets by end-2017. During 2016, immigon's liquidity position improved (as reflected by EUR1.1 billion in cash or around 56% of assets; 2015: 32%) and Moody's believes that the entity will proactively use its excess liquidity to offer further liability buybacks. However, immigon's BCA remains constrained by its still considerable portion of non-performing loans, despite some level of provisioning, and uncertainties around the sale proceeds from its remaining subsidiaries and affiliated entities. In an adverse economic scenario, immigon's improved capital base may prove insufficient to absorb unexpected losses during its continued wind-down process.

After failing the ECB's Comprehensive Assessment in October 2014 by a substantial margin, immigon transferred the majority of its performing assets to other parts of the Volksbanken sector to prevent default or regulatory intervention, but retained its higher risk assets and relinquished its banking license in July 2015.

-- RE-ASSESSMENT OF PROTECTION OFFERED TO DEPOSITORS, SENIOR UNSECURED AND OTHER CREDITORS

The company is subject to the Federal Banking Restructuring and Resolution Act (BaSAG), which transposes the European Union's Bank Recovery and Resolution Directive (BRRD) into Austrian law, and also applies to this wind-down entity. Therefore, Moody's is applying its Advanced LGF analysis, which has a positive effect on immigon's debt and deposit ratings.

For immigon, the LGF analysis is based on the entity's liability structure according to local GAAP as of year-end 2016 and also takes into account the agency's assumption of possible redemptions during 2017. The analysis indicates a low loss-given-failure for deposits and senior unsecured debt, leading to two notches of uplift from its ba3 Adjusted BCA. This assessment is supported by the wind-down entity's volume of senior unsecured debt including promissory notes, which Moody's considers to rank pari passu with senior unsecured instruments as well as the amount of subordinated liabilities.

For subordinated debt issued by immigon, the LGF analysis indicates a moderate loss-given-failure for this junior debt class, leading Moody's to position the wind-down entity's subordinated debt in line with its ba3 Adjusted BCA.

-- STABLE OUTLOOK

The stable outlook on immigon's long-term deposit, senior unsecured and issuer ratings reflects Moody's expectation that immigon can achieve its target to economically wind itself down until end-2017.

-- RATING ACTIONS ON HYBRID CAPITAL INSTRUMENTS

The upgrade of immigon's non-cumulative preferred stock ratings, issued by the entity's finance vehicles OEVAG Finance (Jersey) Limited and Investkredit Funding Ltd, to Caa1(hyb) from C(hyb) reflects Moody's re-assessment of an improved expected recovery for these liabilities at 90%-95% from less than 35% previously, according to Moody's expected recoveries associated with ratings for defaulted or impaired securities. The improved capital of immigon, as well as the ranking of these liabilities at the time of immigon's legal dissolution, which the agency does not expect to occur during the next 12 to 18 months, were key drivers for its re-assessment.

The confirmation of immigon's non-cumulative preferred stock ratings at C(hyb) reflects the rating agency's unchanged assessment of a recovery rate below 35% at the time of immigon's legal dissolution, according to Moody's expected recoveries associated with ratings for defaulted or impaired securities. In Moody's view, these instruments rank subordinated to instruments issued from immigon's finance vehicles, and therefore benefit less from its successful wind-down.

WHAT COULD CHANGE THE RATING -- UP/DOWN

The stable outlook implies no upward rating pressure on immigon's long-term ratings.

However, upward rating pressure on immigon's long-term ratings could result from further substantial improvement in the entity's standalone creditworthiness that would prompt an upward adjustment of its standalone BCA.

Upward pressure on immigon's ba3 BCA could arise from a substantial capital increase and/or a further successful wind-down and de-risking of its balance sheet, which would support immigon's aim of preserving adequate liquidity. Upward pressure on the entity's long-term ratings could develop under Moody's LGF analysis, if material changes in the liability structure occur during its unwinding, resulting in higher cushion for senior instruments from subordinated liabilities.

Downward rating pressure on immigon's long-term ratings could result from a deterioration in the entity's standalone creditworthiness and/or negative effects from the LGF analysis, for example, if material changes in the liability structure occur during its unwinding, including a significant reduction in the volume of subordinated instruments.

Downward pressure on the BCA could develop if the proposed restructuring proves insufficient to indicate that senior creditors will be repaid in full and on time and/or if the Austrian Financial Market Authority (FMA) steps in to initiate resolution measures.

LIST OF AFFECTED RATINGS

Issuer: immigon portfolioabbau ag

The following ratings and rating inputs of immigon portfolioabbau ag were upgraded

....Long-term Issuer Rating, upgraded to Ba1 Stable from B1 Stable

....Senior Unsecured Regular Bond/Debenture, upgraded to Ba1 Stable from B1 Stable

....Subordinate Regular Bond/Debenture, upgraded to Ba3 from Caa1

....Senior Subordinated Regular Bond/Debenture, upgraded to Ba3 from Caa1

....Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba1 from (P)B1

....Subordinate Medium-Term Note Program, upgraded to (P)Ba3 from (P)Caa1

....Adjusted Baseline Credit Assessment, upgraded to ba3 from caa1

....Baseline Credit Assessment, upgraded to ba3 from caa1

....Long-term Counterparty Risk Assessment, upgraded to Baa3(cr) from B1(cr)

....Short-term Counterparty Risk Assessment, upgraded to P-3(cr) from NP(cr)

The following rating of immigon portfolioabbau ag was confirmed

....Preferred Stock Non-cumulative, confirmed at C(hyb)

The following ratings of immigon portfolioabbau ag were affirmed:

....Other Short Term, affirmed (P)NP

The following ratings of immigon portfolioabbau ag were upgraded and will be withdrawn

....Long-term Bank Deposits, upgraded to Ba1 Stable from B1 Stable

The following ratings of immigon portfolioabbau ag were affirmed and will be withdrawn

....Short-term Bank Deposits, affirmed NP

....Short-term Deposit Note/CD Program, affirmed NP

..Outlook Action:

....Outlook changed to Stable from Stable(m)

Issuer: Investkredit Funding Ltd

The following rating of Investkredit Funding Ltd were upgraded

....Preferred Stock Non-cumulative, upgraded to Caa1(hyb) from C(hyb)

..Outlook Action:

....Outlook changed to No Outlook from Rating Under Review

Issuer: OEVAG Finance (Jersey) Limited

The following rating of OEVAG Finance (Jersey) Limited were upgraded

....BACKED Preferred Stock Non-cumulative, upgraded to Caa1(hyb) from C(hyb)

..Outlook Action:

....Outlook changed to No Outlook from Rating Under Review

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.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Swen Metzler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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