Scope Ratings has today upgraded the ratings of Crédit Agricole SA (CASA)’s Additional Tier 1 (AT1) capital instruments to BB+ from BB. The Outlook on the rating of these instruments remains Positive (see details at the end of this press release). The Issuer Credit-Strength Rating (ICSR) of Crédit Agricole Group (and Crédit Agricole SA) was not changed and remains at A with Positive Outlook.

Scope had initially assigned a rating of BB on the AT1 of CASA, incorporating the four minimum notches – as per Scope’s capital instruments rating methodology (September 2014) -- as well as two additional notches representing the rating agency’s concern on (1) the complexity of the instrument (double-trigger on two different entities) and (2) the apparent lack of Available Distributable Items (ADIs) that could have potentially jeopardised coupon payment on the securities.

However, at the Assembly of General Shareholders dated 20 May 2015, CASA asked its shareholders the permission to transfer EUR 10.658bn of issue premium to a reserve account and therefore increase the ADIs by that amount. This resolution was approved by 99.9% of the voters.

As a result, Scope estimates that the ADIs of CASA (parent company) now amount to close to EUR 14.7bn, therefore considerably reducing the risk of coupon cancellation, all the more that both CASA’s and Credit Agricole Group’s buffer to a combined buffer requirement (CBR) breach is very significant (around EUR 18bn and EUR 43bn, respectively).

Scope added that it maintained one additional notch above the four minimum notches of its capital instruments methodology due to the complexity of the notes and the potential change in Crédit Agricole’s group structure, which could in turn lead to a material amendment to the terms of the AT1s.

At the same time, Scope pointed out that Crédit Agricole’s ICSR of A reflects the benefits of the group’s de-risking and return to its domestic retail roots, while leveraging on its size and expertise in savings products businesses (asset management and insurance). The positive outlook reflects the possible change in relationship between CASA and the regional banks which, if clear and properly executed, could materially improve the structure and governance of the group.

The following ratings were changed:

7.875% USD 1.75bn undated deeply subordinated additional Tier 1 fixed rate resettable notes upgraded to BB+ positive outlook from BB Positive Outlook

6.5% EUR 1.0bn undated deeply subordinated additional Tier 1 fixed rate resettable notes upgraded to BB+ Positive Outlook from BB Positive Outlook

7.5% GBP 0.5bn undated deeply subordinated additional Tier 1 fixed rate resettable notes upgraded to BB+ Positive Outlook from BB Positive Outlook

6.625% USD 1.25bn undated deeply subordinated additional Tier 1 fixed rate resettable notes upgraded to BB+ Positive Outlook from BB Positive Outlook

Credit Agricole’s long-terms ratings of A, Positive Outlook and short-term ratings of S-1, Stable Outlook were not changed.