Scope upgrades Rabobank senior unsecured debt rating to AA- from A+, maintains Stable Outlook

The Rating action follows recent amendments to Dutch insolvency law, which are expected to come into force no later than end-December 2018.

Scope Ratings upgraded the senior unsecured debt ratings of Rabobank by one notch to AA- from A+, aligning them with the bank’s AA- Issuer Rating. Scope also assigned an A+ rating to Rabobank’s future MREL-eligible senior non-preferred debt. All ratings have a Stable Outlook.

These rating actions follow the recently passed amendment to the Dutch insolvency law, which enables Scope to fully apply its bank rating methodology (last updated in May 2018) when rating Rabobank’s debt.

The amendment to Section 11AA of the law addresses “ranking in insolvency” for Dutch banks, introducing the option of issuing senior non-preferred debt. In a liquidation scenario (or, by extension, a resolution scenario) such debt would rank below senior unsecured liabilities – deposits and outstanding senior unsecured debt – but above subordinated debt and/or capital securities. Scope considers the new senior non-preferred debt to be MREL-eligible.

Scope’s bank rating methodology states that in cases when there is sufficient clarity regarding the position of MREL-eligible debt in an EU bank’s capital structure, the agency’s rating on this debt will be at least one notch below the respective bank’s Issuer Rating or the rating of its preferred senior debt.

Based on the amended legislation, Scope will rate currently outstanding senior unsecured debt of Dutch banks at the same level as the Issuer Rating, while future MREL-eligible senior non-preferred debt will be rated at least one notch below.

Cash flow analysis & stress testing
No cash flow analysis was performed. No stress testing was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Rating Methodology, 2018 is available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents did not participate in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain and the rated entity.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Chiara Romano, Senior Analyst
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director
The senior unsecured debt rating/outlook was first released by Scope on 02.04.2014.
The non-preferred senior unsecured debt rating/outlook was first released by Scope on 07.11.2018

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

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