DBRS Changes Status for Hypo Real Estate Ratings to Under Review with Positive Implications

DBRS has today changed the status of most ratings on Hypo Real Estate Holding AG and related entities (together HRE or the Group) to Under Review with Positive Implications. The ratings had previously been Under Review with Negative Implications. Today’s rating action includes the Senior Unsecured Long-Term Debt ratings of A (low) and the Short-Term Debt ratings of R-1 (low) for Hypo Real Estate Holding AG and its operating subsidiary Hypo Real Estate Bank AG, all of which are now Under Review – Positive (for more detail, see rating table below). DBRS has not changed the Under Review with Negative Implications status of its B (low) rating for Trust-Preferred Securities rating issued by Hypo Real Estate International Trust I.

Today’s rating action reflects DBRS’s view that actions by the German state indicate continuing support for Hypo Real Estate. DBRS notes that the German parliament on 20 March 2009 passed a law that simplifies and expedites bank nationalisations. The German government has stated that it intends to inject capital into HRE and become a majority shareholder of the Group. In DBRS’s view, the government actions will likely enable HRE to stabilize its franchise, reduce ongoing funding pressures and ultimately execute its restructuring plan. The government also continues to provide EUR 87 billion in liquidity support to HRE. In the view of DBRS, the government’s actions confirm the availability of comprehensive support to HRE. DBRS, however, notes that uncertainty remains regarding the longer-term outlook for HRE.

The ratings review will focus on HRE’s future franchise and underlying earnings generation ability, which have been negatively affected by its liquidity challenges, in DBRS’s view. DBRS continues to view HRE as requiring substantial liquidity and capital support in order to re-emerge as a viable institution. The review will also take into consideration the impact of the Group’s challenges over the past year on its franchise. While the comprehensive government support is the key driver supporting the Group’s ratings, HRE’s weak intrinsic profile remains a negative rating factor.

The Under Review with Negative Implications status for the Trust-Preferred Securities of Hypo Real Estate International Trust I remains unchanged, as DBRS sees a risk that HRE may not make Capital Payments under the terms of these instruments, in order to preserve capital. The Group has recently announced that it will not make payments on certain hybrid securities issued by vehicles established by its Irish subsidiary DEPFA Bank plc.

Notes:
This rating is based on public information.
All figures are in Euros unless otherwise noted.

The applicable methodologies are, Analytical Background and Methodology for European Bank Ratings, Second Edition and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.