NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the long-term and short-term Issuer Default Ratings (IDR) of First Niagara Financial Group, Inc. (FNFG) and its subsidiaries on Rating Watch Negative. A detailed list of ratings follows at the end of this release.
Fitch's placement of FNFG's ratings on Rating Watch Negative reflects the company's recent announcement that it is altering the mix of financing for the deal to purchase the upstate NY branches of HSBC for approximately $1 billion. The company had expected to finance the deal with about a $750-$800 million equity raise and $350-400 million subordinated debt issuance.
The new financing structure includes a reduced common equity raise of $450-500 million, preferred issuance of $350-400 million and subordinated debt issuance of $300 million. The change in the mix of financing reflects market volatility since the deal was announced. In conjunction with this change, FNFG has also cut its dividend by 50%.
In resolving the Rating Watch, Fitch will focus on FNFG's ability to integrate this transaction as well as progress on previous deals. It will also encompass FNFG's ability to make required asset dispositions of approximately $4 billion and the ability to meet longer-term capital targets.
Fitch had affirmed the ratings of FNFG on the acquisition announcement based on the view that this transaction could enhance FNFG's franchise and market share in its main footprint, carried minimal credit risk, and that the proposed financing structure and capital implications were manageable within the current ratings. However, Fitch considers the revised pro forma capital structure, with TCE and Tier 1 Common of 5.0% and 7.5%, respectively, to be a material change and therefore puts pressure on the current ratings.
Fitch recognizes that FNFG's balance sheet is more heavily weighted towards securities at 39% of total assets, thus its pro forma capital ratios compare less favorably under straight leverage measures such as tangible common equity to tangible assets to similarly rated peers. Using risk-adjusted measures, FNFG's capital levels look more comparable. Nonetheless, Fitch regards the change in financing to be more aggressive than previously assumed and creates additional financial burdens on the institution, namely the additional $700 million debt burden from the preferred and subordinated debt issuance.
Ratings could be affirmed at the current levels if Fitch believes FNFG is able to successfully integrate its recent acquisitions from a strategic, operational and managerial perspective, while maintaining consistent-to-improving operating performance and restoring capital levels. Conversely, ratings could be negatively affected if Fitch concludes that capital levels are not likely to improve as forecasted or asset dispositions take longer than anticipated or are at different values than originally assumed.
As part of FNFG's revised capital plans, it has announced plans to issue new subordinated debt and preferred stock. Fitch expects to assign a 'BBB-' to the subordinated debt and a 'B+' rating to the Non-Cumulative Perpetual Preferred Stock issuance. These ratings would be issued under proposed criteria articulated in Fitch's exposure draft, 'Rating Bank Regulatory Capital Securities' released July 28, 2011.
Based in Buffalo, NY, First Niagara Financial Group, Inc. is the parent of First Niagara Bank and offers retail, consumer and business banking products, as well as insurance, brokerage, investment advisory and trust services, through its financial services subsidiaries. The bank had $31.2 billion of assets and $19.6 billion of deposits as of Sept. 30, 2011 and 332 branches throughout upstate New York, Pennsylvania, Connecticut, and Western Massachusetts.
Fitch has placed the following ratings on Rating Watch Negative:
First Niagara Financial Group, Inc
--Long-term IDR at 'BBB';
--Short-Term IDR at 'F2';
--Senior Unsecured at 'BBB'
--Viability at 'bbb'.
--Individual Rating at 'B/C'.
First Niagara Bank
--Long-term deposits at 'BBB+';
--Long-term IDR at 'BBB';
--Short-term deposits at 'F2';
--Short-term IDR at 'F2';
--Viability at 'bbb';
--Individual rating at 'B/C'.
First Niagara Commercial Bank
--Long-term deposits at 'BBB+';
--Long-term IDR at 'BBB';
--Short-term deposits at 'F2';
--Short-term IDR at 'F2';
--Viability at 'bbb';
--Individual rating at 'B/C'.
Fitch expects to assign the following ratings:
First Niagara Financial Group, Inc
--Preferred stock at 'B+';
--Subordinated debt at 'BBB-';
Fitch has affirmed the following ratings
First Niagara Financial Group
--Support at '5';
--Support Floor at 'NF'.
First Niagara Bank
--Support at '5';
--Support Floor at 'NF'.
First Niagara Commercial Bank
--Support at '5';
--Support Floor at 'NF'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the source(s) of information identified in Fitch's Master Criteria, this action was additionally informed by information provided by the company
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Treatment of Hybrids in Bank Capital Analysis' (July 11, 2011);
--'Rating Hybrid Securities' (Dec. 29, 2009);
--'Exposure Draft: Rating Bank Regulatory Capital Securities' (July 28, 2011);
--'U.S. Banks: M&A Activity and Risks on the Rise' (Jan. 26, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269
Rating Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647091
Rating Bank Regulatory Capital Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647469
U.S. Banks: M&A Activity and Risks On the Rise
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=599786
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