Feb 22 - Fitch Ratings has assigned UK SPV Credit Finance plc's upcoming issue of fixed-rate limited recourse notes an expected Long-term rating of 'B(EXP)' and a Recovery Rating of 'RR4'. The issue's planned volume is USD175m with notes having maturities of five years.
The notes are to be used solely for financing a loan to Ukraine-based PJSC CB PrivatBank (PrivatBank). PrivatBank has a Long-term Issuer Default Rating (IDR) of 'B', a Short-term IDR of 'B', a Viability Rating (VR) of 'b', a Support Rating of '5' and a Support Rating Floor of 'No Floor'. The Outlook on the Long-term IDR is Stable. UK SPV Credit Finance plc, a UK-based company, will only pay noteholders amounts (principal and interest) received from PrivatBank under the loan agreement.
The claims under the loan agreement will rank at least equally with the claims of other senior unsecured creditors of PrivatBank, save those preferred by relevant laws. Under Ukrainian law, the claims of retail depositors rank above those of other senior unsecured creditors. At end-Q312, retail depositors accounted for a high 68% of PrivatBank's non-equity funding, according to the bank's unaudited consolidated IFRS accounts. This represents significant subordination for other senior creditors, including bondholders, which could limit recoveries for those creditors in a default scenario. Any further marked increase in bondholder subordination could result in a downgrade of the Recovery Rating, and hence also the Long-term rating, of the debt. Nevertheless, Fitch notes that the successful completion of the current transaction would result, at least temporarily, in a moderate reduction in the proportion of retail funding.
The loan agreement contains a set of covenants, including those which limit disposals, mergers and other types of corporate reorganisations by PrivatBank and its material subsidiaries and stipulate that operations with affiliates should be conducted on an arm's-length basis. A 'negative pledge' clause allows for a creation of a lien (including securitisation) on up to 35% of PrivatBank's total assets. PrivatBank and any of its banking subsidiaries also commit to comply with any capital adequacy ratio requirements set by the relevant banking authority (minimum capital adequacy ratio is 10% for Ukraine). According to the terms of the loan agreement, a cross default is triggered if the overdue indebtedness of PrivatBank or any of its subsidiaries exceeds USD20m. PrivatBank shall redeem the notes if the bank's majority shareholders (Igor Kolomojsky and Gennady Bogolubov) cease to own together, directly or indirectly, more than 50% of the voting stock of PrivatBank and if such an event results in a downgrade of PrivatBank's ratings.
At end-2012, PrivatBank was the largest bank in Ukraine by total assets; Ukrainian businessmen Igor Kolomojsky and Gennady Bogolubov each hold 46% of the bank.
