Nueva York.- El Banco Davivienda S.A. se propone emitir bonos subordinados de nivel 1 denominados por al hasta 700 millones de dólares estadounidenses, perpetuos, con pagos de intereses semestrales y pueden ser redimidos a opción del emisor no antes de cinco o diez años.
Serán híbridos del Patrimonio Básico Adicional (AT1) bajo estándares BIII. Tendrán una redención opcional en la fecha de la primera convocatoria del quinto año o en cualquier fecha de pago de intereses posterior, sujeto a la aprobación de la Superintendencia Financiera de Colombia.
Los pagarés estarán (i) subordinados en derechos de pago a todos los pasivos senior a Tier 1 existentes y futuros de Davivienda, (ii) junior a todos los demás endeudamientos subordinados Tier 2 presentes o futuros, (iii) rango pari passu y sin preferencia entre todos otros pasivos de nivel 1 adicionales existentes y futuros y (iv) senior al capital de nivel 1 ordinario.
Fitch Ratings le acaba de asignar a la emisión de los bonos de Nivel 1 (AT1) adicionales denominados en dólares estadounidenses una calificación esperada a largo plazo de ‘B + (EXP)’.
Moody’s Investors Service, («Moody’s») les asignó hoy una calificación de B1 (hyb) a los bonos subordinados de nivel 1 definidos con el propósito de calificar el instrumento como capital de nivel 1 adicional de acuerdo con las regulaciones colombianas.
El monto de las notas denominadas en dólares estadounidenses aún no se ha determinado. La calificación final depende de la recepción de los documentos finales que se ajusten a la información ya recibida por las calificadoras.
Las ganancias se utilizarán para fines generales y contarán como índices de capital de Nivel 1 adicional en el banco según la regulación local.
Tienen un rango superior al Capital Ordinario de Nivel 1 de Davivienda y tienen un rango pari passu entre ellos y cualquier otra deuda subordinada no garantizada y de Capital Adicional de Nivel 1.
CONDUCTORES CLAVE DE CLASIFICACIÓN
Los bonos se clasificarán cuatro niveles por debajo de la calificación de viabilidad (VR) ‘bbb-‘ de Davivienda, con dos niveles para la gravedad de la pérdida y dos niveles para el riesgo de incumplimiento incremental.
De acuerdo con los criterios de Fitch, este es el notching mínimo a la baja para los pagarés profundamente subordinados con cancelación de cupón totalmente discrecional emitidos por bancos con un ancla VR de ‘bbb-‘. El notching refleja la mayor severidad de la pérdida de los pagarés a la luz de su profunda subordinación y el riesgo adicional de incumplimiento en relación con el VR, dado el alto desencadenante de amortización de CET1 en 5.125% y total discreción para cancelar cupones.
Fitch Rates Davivienda’s Upcoming Perpetual AT1 Notes ‘B+(EXP)’
New York – 12 Apr 2021: Fitch Ratings has assigned Banco Davivienda S.A.’s (Davivienda) upcoming issue of US dollar-denominated perpetual Additional Tier 1 (AT1) notes an expected long-term rating of ‘B+(EXP)’. The amount of the U.S. dollar-denominated notes is yet to be determined. The final rating is contingent upon receipt of final documents conforming to information already received.
Proceeds will be used for general purposes and will count as Additional Tier 1 capital ratios at the bank per local regulation. The notes are perpetual, with semi-annually interest payments and can be redeemed at the option of the issuer no earlier than five years or 10 years, depending on the final structure, subject to prior approval of the Colombian Superintendence of Finance (SFC), if the bank maintains its capital adequacy ratios in accordance with regulatory requirements.
The notes will be junior in right of payment with respect to Davivienda’s depositors, all senior external liabilities of the bank, Tier 2 Capital subordinated debt instruments and other instruments issued and guaranteed by the bank designated as ranking senior to the notes. The notes rank senior to Davivienda’s Common Equity Tier 1 Capital and rank pari passu among themselves and any other unsecured and Additional Tier 1 Capital subordinated indebtedness
KEY RATING DRIVERS
The notes will be rated four notches below Davivienda’s ‘bbb-‘ Viability Rating (VR), with two notches for loss severity and two notches for incremental non-performance risk. According to Fitch’s criteria, this is the minimum downward notching for deeply subordinated notes with fully discretionary coupon cancellation issued by banks with a VR anchor of ‘bbb-‘. The notching reflects the notes’ higher loss severity in light of their deep subordination, and additional non-performance risk relative to the VR, given the high write-down trigger of CET1 at 5.125% and full discretion to cancel coupons.
Coupon payments may be cancelled at the bank’s discretion and full or partial write-down in case either individual or consolidated CET1 capital ratio is below 5.125% or if SFC determines the outstanding principal, accrued and unpaid interest, and any other amounts due on the notes will be permanently reduced, pro rata with reductions on other Additional Tier 1 Capital subordinated by an amount needed to restore the individual or the consolidated CET 1 to 6%. Additionally, the interest payments under the notes will be automatically cancelled (in whole or in part) if the bank does not have sufficient distributable items or if the bank fail to preserve the required combined capital buffer (capital conservation and systemic buffers) according the Decree 2555 and the four-year schedule to adopt Basel III requirements starting on January 2021.
As of December 2020, CET1 was 8.26% comparing favorably with the minimum requirements (4.5%). Basel III adoption started in January 2021 has already increased calculated CET1 by around 300 bps, while the AT1 new issuance would increase the regulatory capital ratio considering CET1 plus AT1 by other 200 bps depending on the final amount issued. Despite operating environment challenges that have reduced the bank’s already low profitability of the bank and that are expected to continue to weigh on asset quality, Fitch does not anticipate significant pressures for the new capital requirements during the Basel III implementation period under a scenario of conservative risk management and gradual business growth.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating of the AT1 notes is sensitive to movements in the bank’s VR in any direction, and the baseline scenario is that the notching will likely remain -4 relative to the bank’s VR. However, the notching could potentially be widened to some extent as per Fitch’s criteria under certain circumstances, if there is a change in Fitch’s view on the non-performance risk of these instruments on a going concern basis, which is not the baseline scenario.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating of the AT1 notes is sensitive to movements in the bank’s VR in any direction, and the baseline scenario is that the notching will likely remain -4 relative to the bank’s VR. However, the notching could potentially be widened to some extent as per Fitch’s criteria under certain circumstances, if there is a change in Fitch’s view on the non-performance risk of these instruments on a going concern basis, which is not the baseline scenario.
For further information about the drivers and rating sensitivities for Banco Davivienda’s ratings, please see «Fitch Affirms Davivienda’s IDR at ‘BBB-‘; Outlook Negative» dated Dec. 12, 2020 at www.fitchratings.com
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/es
Moody’s rates B1(hyb) Davivienda’s proposed additional tier 1 capital notes
New York, April 12, 2021 — Moody’s Investors Service, («Moody’s») has today assigned a B1(hyb) rating to the proposed USD-denominated additional tier 1 subordinated notes to be issued by Banco Davivienda S.A. (Davivienda).
The notes will have an optional redemption on the first call date in the fifth year or on any Interest Payment Date thereafter, subject to the approval of the Colombian Authority. In addition, the terms and conditions to the notes have been defined with the purpose of qualifying the instrument as Additional Tier 1 capital pursuant to Colombian regulations. The rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents that Moody’s has reviewed.
Assignment:
Issuer: Banco Davivienda S.A.
Foreign Currency Subordinated Debt Rating, assigned B1(hyb)
RATINGS RATIONALE
The B1(hyb) rating is positioned three notches below the ba1 adjusted baseline credit assessment (adjusted BCA) of Davivienda, in line with Moody’s standard notching guidance for contractual non-viability perpetual maturity securities.
The rating reflects the risk of a full or partial write-down of the then outstanding principal of the Notes on a permanent basis, pro rata with reductions in the outstanding principal, accrued and unpaid interest and any other amounts due in the event that (1) the bank’s regulatory capital adequacy ratio, equivalent to the Common Equity Tier 1 capital ratio (CET1) falls below 5.125%, which Moody’s considers to be below the point of non-viability, on either an individual (i.e. treating the bank’s Central American subsidiaries as investments) or fully consolidated basis; or (2) the SFC determines that the CET1 ratio needs to be restored to 6.0%. The notes will be permanently reduced, pro rata with reductions on other Additional Tier 1 Capital subordinated by an amount needed to restore the individual or the consolidated CET 1 to minimum 6%.
The notes will be (i) subordinated in rights of payment to all Davivienda’s existing and future senior to Tier 1 liabilities, (ii) junior to all other present or future Tier 2 subordinated indebtedness, (iii) rank pari passu and without preference among all other existing and future Additional Tier 1 liabilities and (iv) senior to Common Equity Tier 1 Capital.
Moody’s assesses the probability that Davivienda will receive support from the Colombian government (Baa2 negative) in a stress situation as high given the bank’s large market share of domestic deposits. However, this support only applies to the bank’s deposit and senior debt ratings. Moody’s does not expect that additional Tier I securities – which are designed to absorb losses – will benefit from government support.
Davivienda’s ba1 baseline credit assessment (BCA) reflects the bank’s good access to core deposits and a long track record of steady liquidity. Conversely, Davivienda’s ratings are challenged by problem loan ratios that increased to 5.0% of gross loans in December 2020, from 3.7% one year prior, a level that is modestly below that of domestic peers. The bank’s asset quality metrics could deteriorate further if borrowers are unable to repay the deferred loans from programs extended up to June 2021 in Colombia and in Central America. The extension of such programs will likely delay credit losses, but the bank has already built significant prudential loan loss reserves against potential losses. These represented 6.0% of its total gross loans in 2020, and could therefore, help mitigate future credit costs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Davivenda’s ratings could be downgraded if asset risk and profitability deteriorate and/or the bank is unable to sustain capitalization at current levels. However, the ratings would not be affected by a downgrade of the Government of Colombia’s sovereign bond rating of Baa2, which has a negative outlook.
Davivienda’s ratings could be upgraded if the bank’s asset quality improves, along with sustainable earnings generation that would boost its current capitalization levels even as loan growth begins to accelerate.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating is Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
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