Apparently they are not always obvious, as the below press release, from Moody’s, demonstrates.
And spotting hybrids is an important issue right now given that the European Commission is determined to impose the concept of burden-sharing on bondholders — forcing them to share some of the pain involved in state bank bailouts. That means, in practice, forcing banks to not make discretionary coupon payments or dividends, or early redemption, on some of their hybrid bonds — a la Lloyds.
Here’s what happened at Moody’s:
Frankfurt, November 03, 2009 — Moody’s Investors Service has today corrected the ratings of the following Ergaenzungskapital notes (subordinated hybrid notes) of Oesterreichische Volksbanken AG (VBAG) as follows:
- EUR5 million Ergaenzungskapital, due August 2019 (ISIN: AT0000438767) to Caa2 from Baa1
- EUR50 million Ergaenzungskapital, due July 2015 (ISIN: AT0000439708) to Caa2 from Baa2
- EUR20 million Ergaenzungskapital, due July 2015 (ISIN: AT0000439716) to Caa2 from Baa2
- EUR39.5 million Ergaenzungskapital, due July 2018 (ISIN: AT0000439732) to Caa2 from Baa2
The ratings of the following Ergaenzungskapital notes of Investkredit Bank AG (Investkredit) were corrected as follows: – EUR5 million Ergaenzungskapital, due July 2022 (ISIN: AT0000322581) to Caa2 from Baa3 The above-mentioned Ergaenzungskapital notes of VBAG and its subsidiary Investkredit were misclassified in Moody’s systems as plain vanilla senior debt and plain vanilla subordinated debt. Based on a review of the terms and conditions, the instruments have been reclassified as subordinated hybrid notes and the ratings have been corrected. The ratings reflect Moody’s expectation of a high likelihood of two annual coupon losses for 2009 and 2010, and a moderate likelihood of one annual coupon loss for 2011. The instruments have a net profit trigger and are non-cumulative. The ratings carry a stable outlook.
Related links:
Contingent capital comes to pass, with a little help from the EC – FT Alphaville
Burden-sharing for bondholders lives! – FT Alphaville