Banco Votorantim S.A.#s Proposed Perpetual Notes Rated #CCC+#

Stocks and Financial Services Press Releases Monday November 20, 2017 08:57
SAO PAULO--20 Nov--S&P Global Ratings

SAO PAULO (S&P Global Ratings) Nov. 19, 2017--S&P Global Ratings said today that it assigned its 'CCC+' issue-level rating to Banco Votorantim S.A.'s (BV; BB/Negative/B) proposed perpetual Tier 1 notes. Additionally, we attributed intermediate equity content to these notes. Amount of the issuance is yet to be defined.

"The rating on this Tier 1 hybrid instrument is five notches below our issuer credit rating on the bank, reflecting the notes' subordinated status to the bank's other senior debt, the risk of partial or untimely payment as a result of the potential cancelation of coupon payments, and the principal write-down risk," said S&P Global Ratings' credit analyst Edgard Dias. The notes should represent less than 1% of BV's total funding base, even though the amount hasn't been defined. Therefore, we don't expect this issuance to change our funding or capital and earnings assessments on the bank.

We're also assigning intermediate equity content to the Tier 1 hybrid instrument because we believe it can absorb losses on a going concern basis. The central bank could request the mandatory write-off, if required, for the bank to continue operating--according to Resolution 4,193--and to suspend interest in case of insufficient distributable profits and accumulated profit reserves. Also, the instrument is perpetual and has no step-up clause, and will have Tier 1 regulatory treatment. The bank will use the proceeds primarily for general corporate purposes.

The ratings on BV reflect our view that the parent, Votorantim S.A. (BB+/Negative/--), which controls 50.1% of BV, will continue to provide support to the bank if necessary. In addition, the affirmation reflects the bank's stable performance despite the tightening lending conditions in Brazil for the past two years. BV's management was able to maintain profitability thanks to successfully adjusting risk controls in the used-vehicle lending business for the past three years and following the risky decision to renegotiate some large corporate loans. Most of the country's large banks are pursuing the latter strategy, which may require sizable provisions in the future. Our analysis also incorporates the ongoing support to BV from Banco do Brasil S.A (BdB; BB/Negative/B), which owns the remaining stake (49.9%) in the bank, through sizable and long-term funding facilities.

Banco Votorantim S.A.
Issuer credit rating BB/Negative/B
New Rating
Banco Votorantim S.A. Junior Subordinated CCC+

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