Scope Ratings today assigned a rating of BBB- with stable Outlook to UBS’s newly issued 5.75% EUR 1bn, 7% USD 1.25bn and 7.125% USD 1.25bn non-cumulative Tier 1 capital notes.

Scope said that it rated the three capital instruments at the same level despite the 5.75% EUR 1bn and the 7% USD 1.25bn being low-trigger (5.125%) instruments and the 7.125% USD 1.25bn being a high-trigger (7%) instrument. The agency noted that the three instruments are the first Basel 3-compliant additional Tier 1 instruments issued by UBS to non-employees. The three instruments have permanent write-down features.

Scope added that the BBB- ratings stand four notches below UBS Group’s Issuer Credit Strength Rating (ICSR) of A. These four notches are the minimum level applied to bank’s AT1 securities – as detailed in Scope rating methodology for bank capital instruments (please see at www.scoperatings.com).

Despite UBS Group AG being a new company, Scope finds the level of available distributable items (ADIs) to stand at a very ample CHF 36.7bn, stemming from the fact that share premium is considered a capital reserve under Swiss corporate law and can therefore be part of the ADIs. As a result, Scope sees limited additional coupon cancellation risk.

Scope also noted that unlike ratings assigned to other high-trigger capital instruments, the rating of UBS Group AG’s high-trigger Tier 1 capital notes has not been notched further for principal loss absorption risk. This is due to the currently very ample distance between UBS Group AG’s sum of CET1 and high-trigger capital ratio of 19.9% and the two triggers of the three rated notes (5.125% and 7% respectively). The distance to trigger represents around CHF 28.5bn as of YE 2014 for the high-trigger notes and CHF 32.6bn for the low-trigger notes.
 

Download complete rating report: UBS Group HT AT1

Download complete rating report: UBS Group LT AT1