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Moody's assigns (P)Caa2 ratings to Bank of Cyprus' EMTN Programme

18/11/2020 16:28

 Moody's Investors Service, ("Moody's") has today assigned provisional (P)Caa2 long-term ratings to Bank of Cyprus Public Company Limited's (Bank of Cyprus) Senior Unsecured Non-Preferred (Junior Senior Unsecured) and local currency Senior Unsecured Preferred (Senior Unsecured) EUR4 billion updated Euro Medium Term Note (EMTN) Programme.

As part of the same rating action, Moody's assigned provisional (P)Caa2 long-term Senior Unsecured and Subordinated Tier 2 ratings to the same programme for Bank of Cyprus Holdings Public Limited Company (Bank of Cyprus Holdings), the holding company of Bank of Cyprus.

The foreign currency Senior Unsecured programme of Bank of Cyprus already carries a (P)Caa2 rating. Under the updated programme Bank of Cyprus
will no longer be able to issue Subordinated Tier 2 Notes and so the (P)Caa2 programme rating will be subsequently withdrawn.

There is an alignment of all rating classes at the (P)Caa2 level, including Senior Unsecured programme ratings of the bank, the most senior class that can be issued under the programme, and Subordinated Tier 2 Notes, the most junior class. Under Moody's Advanced Loss Given Failure (LGF) analysis, even more senior debt issued by Bank of Cyprus would still suffer high loss-given-failure, given the limited volume of Senior Unsecured and Junior Senior Unsecured debt the rating agency expects Bank of Cyprus to issue over the next couple of years, as well as the small volume of subordinated debt (including Holding Company Senior Unsecured and Junior Senior Unsecured debt) protecting more senior debt classes of the bank.

The ratings are placed one notch below Bank of Cyprus' caa1 standalone Baseline Credit Assessment (BCA), using the expected balance sheet of the bank and holding company at failure, under Moody's Advanced LGF analysis. They capture Moody's banking methodology, as it is applied to countries subject to the European Union's (EU) Bank Recovery and Resolution Directive (BRRD) like Cyprus, and incorporates the Cypriot legal framework's preference to all bank deposits relative to senior unsecured creditors. The framework establishes full depositor preference over senior unsecured debt instruments, rather than junior deposits ranking pari passu with senior unsecured claims. Bank of Cyprus' long-term deposit ratings are therefore higher at B3, reflecting a likely lower loss-given-failure for deposits.