DBRS Assigns Additional Ratings to Danske Bank A/S, Senior Unaffected at A (high)

DBRS has today assigned additional ratings for certain debt instruments of Danske Bank A/S (Danske or the Bank) that were not rated previously. The rating actions are based on DBRS’s recently issued methodology for rating bank subordinated debt and hybrid capital instruments with contingent risk. Importantly, today’s rating actions do not reflect any issuer-specific credit events, nor do they impact the other ratings for Danske, including the A (high) Senior Unsecured Debt & Deposits rating, with a Stable trend.

Today’s rating actions impact a relatively limited subset of debt capital instruments with contingent risks, for which DBRS draws an important distinction in its ratings between those instruments where these adverse events are reversible, and those instruments where these adverse events, once triggered, are irreversible. Accordingly, instruments with reversible contingent events are generally rated like other debt instruments that otherwise have similar characteristics. Conversely, instruments with contingent events that are not reversible are viewed as more risky and more equity-like, and as such, are generally rated lower, with notching driven by DBRS’s preferred rating scale for banks.

DBRS has today published a methodology, “Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risks.” This methodology addresses instruments with contingent risk features that have already been issued by European banks, and also lays out the framework for rating instruments with such features in the future. This publication builds on DBRS’s approach to rating subordinated debt and hybrid instruments, which was clarified in our press release on 21 December 2009 and is detailed in our recently published methodology, “Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments.”

With this backdrop and consistent with the aforementioned methodologies, DBRS has assigned a new rating of BBB (low), with a Stable trend, to Dated Subordinated Debt issued by Danske. The rating reflects DBRS’s assessment of the irreversible write-down feature of these instruments, and DBRS’s view that this feature adds significant risk compared to similar instruments without such features. Danske’s Dated Subordinated Debt can be reduced and cancelled if all equity capital of the issuer has been lost, the share capital has been reduced to zero and either sufficient new share capital is subsequently contributed or the issuer discontinues its business without a loss to non-subordinated creditors. Any such reduction and cancellation is irreversible. Given these features and consistent with its methodology, DBRS rates Dated Subordinated Debt of Danske three notches below the intrinsic assessment for the issuer. The coupon payments on the Dated Subordinated Debt are deferrable, but cumulative. These instruments rank senior to Hybrid Tier 1 Capital Notes.

DBRS has also assigned a new rating of BB (high), with a Stable trend, to Hybrid Tier 1 Capital Notes issued by Danske. These instruments have an irreversible reduction and cancellation feature (similar to Dated Subordinated Debt). DBRS rates the Hybrid Tier 1 Capital Notes four notches below the issuer’s intrinsic assessment. The notching reflects the junior status of these instruments and the deferrable/non-cumulative nature of the coupon payments, if the issuer has no Available Free Reserves.

Note:
The applicable methodologies are
Global Methodology for Rating Banks and Banking Organisations,
Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risks,
Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments,
Rating Bank Preferred Shares and Equivalent Hybrids,
Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments,
which can be found on our website under Methodologies.

This rating is based on public information.

This is a Corporate (Financial Institutions) rating.