Moody's Assigns Ba2 Rating To CYBG's Additional Tier 1 Securities

LONDON (Alliance News) - Moody's Investor Service on Monday assigned CYBG PLC's high-trigger ...

Alliance News 15 April, 2019 | 2:34PM
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LONDON (Alliance News) - Moody's Investor Service on Monday assigned CYBG PLC's high-trigger additional tier 1 securities a Ba2(hyb) rating.

The GBP250 million fixed rate reset perpetual subordinated contingent convertible notes may be cancelled in full or in part on a non-cumulative basis at CYBG's discretion.

If CYBG's consolidated CET1 ratio falls below 7%, the securities are permanently converted into shares.

The high-trigger rating is lower than an implied Moody's model and an equivalent non-viability security rating.

Moody's said its implied rating is based on the probability of CYBG breaching the 7% conversion trigger and the "loss severity" if the trigger is breached.

Based on those probabilities, the implied rating of Ba1 is set by "overall intrinsic" credit strength of CYBG's operating bank - Clydesdale Bank PLC currently has a baa2 adjusted baseline credit assessment - which takes into account CYBG's consolidated financials, including recently acquired Virgin Money PLC.

The rating also reflects CYBG's CET1 ratio at December 31 of 14.5% and Moody's "forward-looking view on the expected development" of the lender's common equity tier ratio.

An equivalent non-viability security rating, of Ba2, would, along with Clydesdale Bank's baa2 rating, take into account the "high loss-given-failure" for subordinated securities issued by CYBG - which Moody's has one notch below the adjusted baseline credit of Clydesdale Bank.

The securities "skip mechanism", and write-down features, Moody's said, would reduce the non-viability security rating by an additional two notches. Moody's also believes there is a "low probability" of government support for CYBG is its CET1 ratio dipped below 7%, therefore there is no rating uplift.

Moody's added: "CYBG's ratings, including the rating on its AT1 instruments, could be upgraded if the risks related to the integration with Virgin Money reduce, profitability improves, and risks related to conduct charges diminish. Conversely, CYBG's ratings could be downgraded due to weaker-than-expected profitability, including further material legacy conduct costs."

Subordinated instruments, Moody's said, do not carry outlooks.

By Paul McGowan; paulmcgowan@alliancenews.com

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
CYBG PLC 217.50 GBX 1.07
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