Fitch Ratings has placed
Fitch also placed HSCA's Viability Rating (VR) and Shareholder Support Ratings on Rating Watch Positive.
In Fitch's opinion, the
Key Rating Drivers
The Rating Watch Positive on HSCA's ratings reflects Fitch's view the purchase by RY (AA-/Stable) from
Fitch expects to resolve HSCA's Rating Watches upon the completion of the transaction with RY, which is expected to take place by late 2023 and is contingent on customary regulatory approvals from the competition bureau, OSFI and the Minister of Finance.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating actions could be possible if regulatory approvals are not achieved or execution challenges lead to a termination of the transaction and cause distraction from the bank's own strategic plans, or materially alters the bank's relationship and support with the current parent,
Factors that could, individually or collectively, lead to positive rating action/upgrade:
HSCA's ratings will likely be upgraded and equalized with those of RY upon the completion of the acquisition. Supporting the upgrade and equalization would be confirmation of HSCA's role in the RY group, as well changes in branding.
Given this sale is expected to close in late 2023, Fitch expects the resolution of the Rating Watch may occur subsequent to six months in the future, outside of Fitch's normal Rating Watch time horizon.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SENIOR UNSECURED
HSCA's senior unsecured debt of 'A' was also placed on Watch Positive. It is equalized with HSCA's Long-Term IDR.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
HSCA's subordinated debt of 'BBB+' was also placed on Watch Positive. It is notched two notches from HSCA's IDR for loss-severity.
While subordinated debt and hybrid securities are typically notched from the bank's VR, Fitch believes that the high level of institutional support from
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
HSCAs senior unsecured and subordinated debt ratings would be sensitive to changes to HSCA's IDR.
VR ADJUSTMENTS
Business Profile is 'a-' and above the implied score of 'bbb'. This reflects a positive analytical adjustment for Group Benefits and Risks.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings for HSCA are linked to those of its parent,
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2022 Electronic News Publishing, source