Fitch Ratings has published the criteria report titled 'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis'. This criteria report updates Fitch's treatment of hybrids in the analysis of Non-financial Corporate and REIT issuers and the notching of hybrids in these sectors.
This newly published criteria report replaces both 'Treatment of Hybrids in Corporate and REIT Credit Analysis', dated July 11, 2011 and (along with the criteria report titled 'Rating Bank Regulatory Capital and Similar Securities'; also published today) 'Rating Hybrid Securities' dated July 28, 2011. Both previously published criteria reports have been withdrawn today.
The updated Non-Financial Corporate and REIT criteria are substantially the same as the previous criteria, so it will not automatically trigger any immediate rating changes in these sectors.
Fitch continues to allocate hybrid securities into the following categories: 100% equity, 50% equity and 50% debt, or 100% debt. Hybrids are evaluated, in determining equity credit, as to the extent they contribute to financial flexibility and support the ongoing viability of an organization. To achieve any equity allocation, an instrument should avoid mandatory payments, covenant defaults, or events of default (EODs) that could trigger a general corporate default or liquidity need. Structural features that constrain a company's ability to activate the equity-like features of a hybrid make an instrument more debt-like.
Hybrid instruments with going-concern loss absorption are typically deeply subordinated instruments with very low recovery prospects in liquidation or bankruptcy. Such an instrument will therefore be treated as being highly loss absorbing and rated at least two notches below the Issuer Default Rating (IDR) for most corporate issuers. Hybrids in certain sectors that typically exhibit higher recovery values, such as utilities and REITs in select EMEA jurisdictions, are typically rated a net one notch below the IDR.
Going-concern loss-absorption hybrid securities issued by financial institutions are expected to be rated in accordance with the principles outlined in the agency's criteria titled 'Rating Bank Regulatory Capital and Similar Securities'. Fitch will make it clear in its published research which criteria it is using for assigning ratings to hybrid securities.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12 2011).
--'Treatment and Notching of Hybrids in Non-financial Corporate and REIT Credit Analysis' (Dec. 15, 2011);
--'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011);
--'Treatment of Hybrids in Bank Capital Analysis' (July 11, 2011).
Applicable Criteria and Related Research: Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656516
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269
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Contacts:
Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations,
New York
brian.bertsch@fitchratings.com
or
REITs:
Steven
Marks, +1-212-908-9161
Managing Director
Fitch, Inc.
One
State Street Plaza
New York, NY 10004
or
Corporates:
Nikolai
Lukashevich, CFA, +7 495 956 9901
Senior Director
Fitch
Ratings CIS Limited
6, Gasheka St
Moscow 125047
or
Jeffrey
Woodruff, CFA, +44 20 3530 1281
Senior Director
Fitch Ratings
Limited
30 North Colonnade
London E14 5GN
or
Rolando
Larrondo, +1-212-908-9189
Director
Fitch, Inc.
One State
Street Plaza
New York, NY 10004