February 22, 2005 | Cbonds
|Moody's Investors Service has assigned a rating of Ba2 to Loan Participation notes to be issued in a private placement on a limited-recourse basis by Dresdner Bank AG for the sole purpose of financing a subordinated loan to Ukreximbank. The issuer will be accountable to the noteholders only for the amounts (if any) actually received from the bank under the subordinated loan agreement. The volume of the issue is not yet known, while the targeted maturity of the notes is five years. The outlook for the rating is stable. |
Moody's noted that the subordinated loan agreement contains an interest suspension clause subject to which the Bank may elect to defer interest payments, if requested to do so by the National Bank of Ukraine. The list of tests for interest suspension is quite elaborate and, in Moody's view, the likelihood that the Bank will have to suspend interest payments because of its failure to meet any of these tests is relatively low.
According to Moody's, the notes might be eligible for early redemption by the noteholders if the Change of Control covenant were to be triggered in the senior unsecured Loan Participation Notes due in 2009 (this refers to a scenario in which the bank's ratings were to be downgraded as a result of the Ukrainian government's intention to cease its ownership or control of the bank). However, because of the subordinated nature of the loan its early redemption is problematic without the corresponding capital injection. This partially mitigates the adverse impact of debt repayment escalation and further downward pressure on the ratings in the event of such a scenario, the rating agency notes.
Moody's explains that the Ba2 rating is based on the fundamental credit quality of Ukreximbank, a wholly state-owned bank which, apart from its agent's role on behalf of the government, is engaged in commercial banking activities and ranked seventh-largest in terms of total assets as of 30 September 2004. The rating also reflects the probability of a sovereign default implied by Ukraine's B1 (stable outlook) foreign currency bond rating, and the likelihood that the Ukrainian government could impose a debt moratorium in the event of default on its own foreign currency obligations.
Additionally, the rating reflects the subordinated nature of payments from Ukreximbank under the Loan Agreement and the likely impact of the interest suspension clause. Given the nature of the underlying foreign currency transfer risk, depending upon the specific rating levels involved, slight differences in standalone credit quality (reflected in the global local currency rating for the issue) arising from differences in priority of claims do not necessarily result in foreign currency ratings distinctions.
The rating also addresses the risk that such a moratorium might include foreign currency loans and that these notes in particular, being dependent upon loan payments by Ukreximbank, might be affected. Given that the banking system is an arm of the government's monetary and foreign exchange policy, Moody's believes that credits dependent upon bank performance may have a lower probability of having such payments exempted from a moratorium than would, for example, a major exporter.
The Ba2 rating thus indicates the joint probabilities of default that are contained in the foreign currency ceiling and the standalone rating of the security. A discussion of the rationale behind these credit evaluations can be found in Moody's Rating Methodology entitled "Revised Country Ceiling Policy".
Ukreximbank is headquartered in Kyiv, Ukraine, and reported total consolidated assets of US$1.05 billion in accordance with IFRS (unaudited) as of 30 September 2004.