Scope Ratings today assigns a preliminary rating of BBB- with Positive Outlook to UBS Group AG’s planned issuance of USD Tier 1 Capital Notes. The rating is expected to be the same as those on other rated Additional Tier 1 (AT1) securities from UBS Group AG. Similar to these securities, the new Capital Notes have permanent write-down features and a 7% trigger.

Coupon payments on the Capital Notes are fully discretionary and non-cumulative. Further, UBS is prohibited from making coupon payments on the Capital Notes if the amount of distributable items is insufficient, all applicable minimum capital adequacy requirements are not met or the Swiss regulator requires so. As of end-2015, UBS Group AG had CHF 38bn in distributable items; more than sufficient to make coupon payments.

Scope also considers that the write-down risk of the Capital Notes is quite low (outside of a resolution scenario) in light of UBS’s sound capital metrics and the way the capital position is measured in relation to the 7% trigger (sum of CET1 capital ratio and High-Trigger capital ratio). As of end-June 2016, the sum of UBS Group AG’s CET1 and High-Trigger capital ratio was 20%, providing a cushion of over CHF 28bn to the 7% trigger on the Capital Notes.

Further details and analysis can be found in the UBS Group AG AT1 Rating Report. Scope adds that the preliminary BBB- rating on the Capital Notes stands four notches below the group’s TLAC-eligible senior unsecured debt rating of A. These four notches are the minimum applied to bank’s AT1 securities – as detailed in Scope’s rating methodology for bank capital instruments. Both documents can be found at www.scoperatings.com.

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Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

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The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund and Dr. Sven Janssen.
The rating analysis has been prepared by Pauline Lambert, Executive Director
Responsible for approving the ratings: Sam Theodore, Managing Director.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Rating history
The preliminary rating concerns a financial instrument, which was evaluated for the first time by Scope Ratings AG.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity.

As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Website of the rated entity/issuer, annual reports/quarterly reports of the rated entity/issuer, current performance record, data provided by external data providers, external market reports, press reports / other public information,
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodologies applicable for this rating “Bank Rating Methodology” (May 2016) & “Bank Capital Instruments Rating Methodology” (May 2016) are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s credit rating, definitions of rating symbols and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

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