Although the ratings agency affirmed the building society’s long and short-term debt as well as its junior subordinated debt, it says due to its rescue and adverse final results it was still a “significant risk”.
Moody’s rating action follows West Bromwich’s issuance of profit participating deferred shares, where West Bromwich’s existing subordinated debt of
£182.5m is converted to tier 1 capital.
Moody’s says it considers this rescue as a “distressed exchange”, since under an alternative scenario of the society’s break-up the subordinated debt investors would be faced with a low level of recovery on their investment.
The ratings agency says: “[We] considers that there are significant risks to West Bromwich’s financial fundamentals stemming from the society’s existing loan portfolio. West Bromwich’s E+ rating reflects the high loss expectations from its commercial and buy-to-let portfolio.
“In our analysis, however, the society still faces substantial provisioning needs and deteriorating asset quality trends in the context of declining house prices. West Bromwich’s objectives to de-risk the balance sheet and restructure its commercial lending portfolio remain outstanding tasks that are still to produce tangible results.”
Moody’s says due to the fact that the FSA gave the green light to the share deal last week, West Bromwich’s long-term ratings remains on a stable outlook.