Moody’s assigned Ba3 rating to the upcoming issue of loan participation notes to be issued on a limited recourse basis by Standard Bank for the sole purpose of financing a subordinated loan to PrivatBank. The amount and maturity will be determined by the market conditions. The outlook for the rating is stable. Moody’s explains that the Ba3 rating assigned to the notes is based on the fundamental credit strength of PrivatBank, which is the largest domestic bank with Baa3 global local currency rating, and pierces the B1 country ceiling for foreign currency bonds.
The rating also reflects the probability of a sovereign default implied by Ukraine ‘s B1 foreign currency bond rating. Moody’s notes that the subordinated loan agreement contains an interest suspension clause, subject to which (under certain conditions) PrivatBank may defer interest payments, if requested to do so by the NBU.
The subordinated loan agreement stipulates a number of conditions, which may trigger interest suspension, such as deterioration in the bank’s financial position evidenced by a breach of certain of NBU’s requirements, material impairment of the bank’s assets (measured by a specific ratio of negatively classified assets after provisions), net loss incurred for the period preceding the interest payment, etc. However, should the interest be suspended, the bank’s obligation to pay it is not cancelled and the interest will be payable within the 30 days from the time, when such condition arose. According to Moody’s, the expected loss from the interest suspension -- which is deemed to be a remote event -- is also captured in the Ba3 rating. PrivatBank is headquartered in Dnipropetrovsk, Ukraine , and reported total consolidated assets of US$4.165 billion under IFRS as of June 30.