Fitch: Early Refinancing Should Not Reduce Hybrid Equity Credit

miércoles 12 de marzo de 2014 08:10 GYT

(The following statement was released by the rating agency) FRANKFURT/LONDON, March 12 (Fitch) Early refinancing or redemption of a hybrid instrument will generally not affect the equity credit Fitch Ratings gives to a replacement instrument unless we believe the issuer's commitment to a specific capital structure has weakened. We have received a high number of inquiries about how we view these issues in the weeks since ArcelorMittal's decision to repay a hybrid around 18 months after it was issued. Hybrid instruments attract 0%, 50% or 100% equity credit under our methodology. For an instrument to qualify for any equity credit, the issuer must be freely able to defer coupons and there must be a remaining effective maturity of at least five years. Effective maturity is generally the date at which the instrument is most likely to be refinanced. The five-year threshold shows a commitment by the issuer to a certain capital structure. But a hybrid instrument is just one of several ways to achieve a particular structure, and many companies actively manage their capital structure. Similarly, issuers can buy back shares, and we do not discount the remaining equity on those grounds. Our methodology therefore does not treat hybrid capital as an unchanging instrument in the capital structure, but recognises that it is a funding instrument. We will not consider call dates that relate to certain events, such as changes to tax or rating agency treatment of hybrid securities, as effective maturities and they are not detrimental to equity credit. This acknowledges issuers' need to manage their capital structures and adapt to changing circumstances. Circumstances may also make an earlier-than-anticipated refinancing of the hybrid instrument a sensible choice. The equity credit we assign to a subsequent instrument in such cases will be based on the methodology and generally will not be reduced unless we believe an issuer's management of hybrid instruments has become generally short term. Alternatively, if an issuer's capital structure strengthened substantially after the issue of the hybrid and maintaining the instrument was no longer economically sensible, we would not view a decision to repay or redeem the instrument in itself as negative for the credit profile. We would review the impact on the IDR using our normal methodology. Contact: Karsten Frankfurth Senior Director Corporates +49 69 768 076 125 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.