Moody’s withdraws Novo Banco positive outlook rating

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The US ratings agency Moody’s has withdrawn its positive outlook rating on Novo Banco deposits.

The agency, which grades the financial health and sustainability of companies and banks across a range of criteria, has maintained the bank’s Caa1 rating but removed the “positive outlook” note.

The agency says it will await the next set of results for the first half of 2018 before taking any further decision.

An official source at the bank stated: “This decision reflects the fact that the ratings agency is awaiting the bank’s results for the first six months of the year. Therefore, it could means either an improvement or downgrading of the rating.”

Moody’s states that the change in ranking has been “triggered by Moody’s assessment of the bank’s liability structure following the announcement on 29 June 2018 of the outcome of the exchange offer on Novo Banco’s outstanding senior debt and the issuance of EUR400 million of subordinated debt. 

The rating action also reflects the bank’s lower volume of junior deposits as of the end of March 2018 (latest data available), which has resulted in an overall reduction in the stock of Novo Banco’s bail-in-able liabilities despite recent market-funded debt issuance.

The rating agency has also taken the following actions on Novo Banco: (1) affirmed the bank’s baseline credit assessment (BCA) and adjusted BCA at caa2; (2) affirmed the bank’s long-term senior unsecured debt ratings at Caa2; (3) affirmed the bank’s long-term Counterparty Risk (CR) Assessment at B2(cr) and (4) affirmed the bank’s long-term Counterparty Risk Rating at B2. The outlook on the long-term senior unsecured debt ratings remains positive.

All of the bank’s short-term ratings and assessments are unaffected by the today’s rating action.

The developing outlook on the bank’s long-term deposit ratings and the positive outlook on the long-term senior debt ratings reflects Moody’s expectation of a gradual improvement of Novo Banco’s very weak credit fundamentals over the next 12 to 18 months if the bank starts to deliver on the key targets of its restructuring plan, namely a reduction of problematic assets and downsizing of its operations as well as a sustained improvement on its very weak revenue generation capacity.

Conversely, the developing outlook on Novo Banco’s long-term deposit ratings also reflects the adverse effect on these ratings should there be a further reduction in the stock of junior deposits.

Senior debt is debt which takes priority over other unsecured or otherwise more “junior” debt owed by the issuer.