MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings assigns a long-term final rating of 'BB+' to Banco Santander Mexico (SAN Mexico)'s USD 1.3 billion aggregate principal amount of 5.95% Basel III Compliant Tier 2 Subordinated Capital Notes due 2024. The rating is three notches below the applicable anchor rating, SAN Mexico's Viability Rating (VR), which is currently 'bbb+'.
The rating is in line with the expected rating assigned on Dec. 11, 2013.
These securities will receive 50% equity credit for the purposes of assessing capital adequacy, according to Fitch's criteria and metrics.
KEY RATING DRIVERS
The 'BB+' rating assigned to these securities is three notches below SAN Mexico's VR. This notching is driven by the two notches associated to non-performance risk, plus one additional notch for loss severity.
The notching for non-performance risk (-2) is typical for hybrids issued by Mexican banks, since Fitch considers that the triggers for coupon deferrals or cancellations are relatively high, according to applicable local regulations.
In turn, the notching for loss severity (-1) reflects that these securities are plain-vanilla subordinated debt (subordinated preferred, under the local terminology).
In Fitch's view, the partial write down feature contained in these securities does not imply incremental non-performance risk, given the relatively low trigger that Fitch considers is effectively the point of non-viability, and also considering the ample cushion of SAN Mexico's capital and earnings capacity, as well as the strong supervision framework that partially mitigates the likelihood of breaching the write down trigger.
RATING SENSITIVITIES
Under most circumstances, Fitch considers that these securities will likely remain rated three notches below SAN Mexico's. Therefore, the rating of these securities will typically move in line with any potential changes of SAN Mexico's VR.
However, if SAN Mexico's capital metrics deteriorate materially, increasing the likelihood of coupon deferrals, the non-performance risk of these securities would be higher, and Fitch could potentially widen the rating gap between these securities and the bank's VR (currently at -3). Similarly, the notching versus the anchor rating could be widened due to loss severity considerations, if capital metrics deteriorate to such extent that the likelihood of breaching the write down trigger is material and there are no mitigating elements to prevent a full write down of the notes.
Fitch assigned the following final rating:
Banco Santander Mexico:
-- Tier 2 Subordinated Capital Notes due 2024 at 'BB+'.
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
-- Global Financial Institutions Rating Criteria (Aug. 15, 2012);
-- Assessing and Rating Bank Subordinated and Hybrid Securities (Dec. 05, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=812737
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.