Scope Ratings today assigned a rating of BBB- with Stable Outlook to UBS Group AG’s newly issued 6.875% USD 1.575bn non-cumulative Tier 1 capital notes. This rating is the same as the rating previously assigned by Scope to the 7.125% USD 1.25bn Perpetual Tier 1 capital notes, issued on 19 February 2015. Similar to those securities’ terms and conditions, the new Capital Notes have permanent write-down features and the same trigger CET1 ratio of 7%.

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’s rating methodology for bank capital instruments (please see at www.scoperatings.com).

Scope estimates the level of Available Distributable Items (ADIs) of UBS Group AG to be very high, standing at CHF 36.7bn at year-end 2014. Even if the ADI level may come down slightly (on the back of the payment of a CHF 0.50 cash dividend per bearer share in Q2 2015 - totalling CHF 1,822m - being paid out of the capital contribution reserve out of the general reserve, as well as another CHF 0.25 dividend that UBS expects to pay out in Q3 2015), Scope still estimates it being very close to CHF 35bn. This ADI level, which is high notably given the relatively recent establishment of UBS Group AG (UBS’s holding company), can be explained by the fact that share premium is considered a capital reserve under Swiss corporate law and can therefore be part of the ADI. In light of this Scope considers that the coupon cancellation risk for the new Capital Notes is very low, thus not warranting additional rating notches from the ICSR.

In Scope’s view, no additional rating notching from the ICSR is warranted either when considering the other main risk specific to bank capital securities, that of principal loss-absorption (in this case via permanent write-down). The rating agency highlights it as very remote, thanks to the very ample cushion – around CHF 26.4bn as of Q2 2015 – between UBS Group AG’s sum of CET1 and High-Trigger capital ratio of 19.5% and the 7% trigger of the rated notes.