DBRS: Impact of Updated Criteria on Bank Preferred and Preferred-Hybrids in the U.S.

DBRS, Inc. (DBRS) has downgraded some ratings and upgraded other ratings for preferred securities (“preferreds”) and securities that can convert to preferreds (“preferred hybrids”) at certain banks to reflect the updated “DBRS Criteria: Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities” released today.

The ratings on these preferred shares and preferred hybrids are impacted by a specific change in the updated Criteria versus the outstanding criteria that relates to the rating of bank preferred shares and instruments that can convert into preferreds. These instruments were typically rated 3-5 notches below the issuer’s Intrinsic Assessment (IA) with the notching increasing for lower rated banks. Based on further assessment of the impact of notching versus probability of default levels, this notching is changed in the updated Criteria to a standard 3 notches across all rating categories.

For the U.S., preferred ratings were mostly upgraded, while companies that have rated preferred securities with Issuer & Senior Debt ratings in the AA-range rating category were unaffected. The one exception was the Northgroup Preferred Capital Corporation Perpetual Preferred Stock rating, which was downgraded to BBB (high). As a subsidiary of a foreign-owned parent, The Toronto-Dominion Bank, DBRS typically adds one additional notch of subordination from the parent’s rating.

Today’s actions apply only to preferreds that DBRS rates as listed below. Other ratings for these issuers are unchanged. Importantly, these actions do not reflect any issuer specific credit events. Related rating trends and Under Review placements are also unchanged.

For additional information on this rating, please refer to the linking document under Related Research.

Notes:

The principal applicable methodology is DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. Other applicable methodologies include the Global Methodology for Rating Banks and Banking Organizations and the DBRS Criteria – Intrinsic and Support Assessments. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on September 2, 2014 to reflect actual methodologies used.]

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

DBRS's rating definitions and the terms of use of such ratings are available at www.dbrs.com.