DBRS Takes Various Rating Actions, Assigns Additional Rating to DnB NOR, Senior Unaffected at AA

DBRS has today taken various rating actions on certain debt instruments, as well as assigning additional ratings for some debt instruments of DnB NOR Bank ASA (DnB NOR 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 DnB NOR, including the AA Senior Unsecured Long-Term Debt & Deposit 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 downgraded Dated Subordinated Debt (previously Subordinated Debt) issued by DnB NOR to “A”, with a Negative trend, from AA (low). At the same time, the debt name was changed to more accurately describe the instrument. Furthermore, DBRS has assigned a new rating for Undated Subordinated Debt issued by the Bank, also at “A”, with a Negative trend. The ratings reflect 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. DnB NOR’s subordinated debt can be written down in part or in full, if more than 75% of the issuer’s share capital has been lost. Any such write-downs are irreversible, and write-downs may occur before the issuer becomes technically insolvent. Consistent with its refined methodology, DBRS rates Dated Subordinated Debt and Undated Subordinated Debt of DnB NOR two notches below the intrinsic assessment for the issuer. The Negative trend reflects the trend on the Bank’s senior rating.

Further, DBRS has changed the debt name for Capital Contribution Securities (previously Hybrid Tier 1 Securities) issued by DnB NOR. The new debt name more accurately describes the hybrid instruments of the issuer. The A (low) rating, with a Negative trend, for the Bank’s Capital Contribution Securities remains unchanged. DnB NOR’s Capital Contribution Securities have an irreversible write-down feature (similar to the Dated and Undated Subordinated Debt), as well as additional write-down and conversion features. DBRS rates DnB NOR’s Capital Contribution Securities three notches below the issuer’s intrinsic assessment. The notching reflects the junior status of the Capital Contribution Securities and the deferrable/non-cumulative nature of the coupon payments. The Negative trend reflects the trend on the Bank’s senior rating.

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 is a Corporate (Financial Institutions) rating.