Moody's Investors Service has assigned a B3(hyb) rating to Bank of Cyprus Holdings Public Ltd Company's (Bank of Cyprus Holdings) upcoming Additional Tier 1 (AT1) capital instrument.
According to a statement, Bank of Cyprus Holdings, the parent company of Bank of Cyprus Public Company Limited (Bank of Cyprus), is in the process of raising around €220 million of AT1 notes, which will refinance Bank of Cyprus Holdings' existing €220 million AT1 notes. This will be a standalone issuance, not part of an EMTN programme, of a perpetual instrument with a call option for the issuer after five years, optional non-cumulative coupon suspension and will have a low trigger (Common Equity Tier 1 ratio dropping below 5.125%) principal write-down feature.
The AT1 securities are contractual non-viability preferred securities. In a bank resolution they rank senior only to junior obligations, including ordinary shares and common equity Tier 1 capital. Coupons are cancelled on a non-cumulative basis at the bank's discretion, and on a mandatory basis subject to availability of distributable funds and breach of applicable regulatory capital requirements.
According to the terms and conditions of the issuance and based on its Advanced Loss Given Failure (LGF) analysis, Moody's has assigned a B3(hyb) rating to this AT1 instrument, which is positioned three notches below its operating bank's (Bank of Cyprus) Baseline Credit Assessment (BCA) of ba3. This takes into account the elevated credit risks associated to this type of subordinated debt class, given the relatively low cushion available for absorbing losses before the AT1 creditors are impacted in a resolution scenario.
The ratings on the AT1 notes will likely be upgraded if the BCA of Bank of Cyprus is upgraded.
There is currently limited downside pressure on the ratings given the positive outlook on Bank of Cyprus's long-term deposit ratings.