Moody's assigns Ba2(hyb) rating to Commerzbank AG's low trigger Additional Tier 1 instrument
25 Jun 2019
Frankfurt am Main, June 25, 2019 -- Moody's Investors Service (Moody's) has today assigned a Ba2(hyb) rating to the expected USD500 million low-trigger Additional Tier 1 (AT1) securities ("Undated Non-Cumulative Fixed to Reset Rate Additional Tier 1 Notes of 2019 ") to be issued byCommerzbank AG (Commerzbank).
Moody's said that Commerzbank's existing ratings and rating inputs are unaffected by today's rating action.
RATINGS RATIONALE
The Ba2(hyb) rating assigned to Commerzbank's "low trigger" Additional Tier 1 (AT1) securities, or "contractually non-viability preferred securities", takes into account the instrument's undated deeply subordinated claim in liquidation, as well as the security's non-cumulative coupon deferral features, and is positioned three notches below Commerzbank's baa2 Adjusted Baseline Credit Assessment (BCA).
According to Moody's framework for rating non-viability securities under its bank rating methodology, the agency typically positions the rating of low-trigger AT1 securities three notches below the bank's Adjusted BCA. One notch reflects the high loss-given-failure that these securities are likely to face in a resolution scenario, owing to their deep subordination, relatively small volume and limited protection from residual equity. Moody's rating for non-viability securities also incorporates two additional notches to reflect the higher risk associated with the non-cumulative coupon skip mechanism, which could take effect prior to the issuer reaching the point of non-viability.
The AT1 securities are senior only to Commerzbank's ordinary shares and other capital instruments that qualify as Common Equity Tier 1 (CET1). The instrument's principal is subject to a write-down on a contractual basis if Commerzbank's CET1 ratio falls below 5.125%. Furthermore, a write-down or conversion into common equity could occur if the bank's regulator or the relevant resolution authority determine that the conditions for a write-down of the instrument are fulfilled and resolution authorities order such a write-down.