CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to rate First Republic Bank's (FRC) subordinated debt issuance 'BBB+'. Proceeds of the issuance are for general corporate purposes. The company may also use the net proceeds of the offering, together with cash on hand, to redeem, subject to applicable regulatory approval, its 6.70% noncumulative perpetual series A preferred stock, which is redeemable at FRC's option, in whole or in part, on or after Jan. 30, 2017.
Fitch affirmed FRC's Long-Term Issuer Default Rating and Viability Rating (VR) at 'A-' and 'a-' in January 2016. For more information pertaining to that rating action, please see the press release titled 'Fitch Affirms First Republic at 'A-' Following Midtier Regional Bank Review; Outlook Stable' (Jan. 28, 2016).
KEY RATING DRIVERS
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The notes will be subordinated in right of payment to the payment of FRC's existing and future senior debt. The expected subordinated debt rating is notched one level below its VR of 'a-' for loss severity. This is in accordance with Fitch's criteria and assessment of the instruments non-performance and loss severity risk profiles.
RATING SENSITIVITIES
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
FRC's subordinated debt ratings are broadly sensitive to the same considerations that might affect its VR.
As communicated in the aforementioned press release (dated Jan. 28, 2016), Fitch considers FRC's current ratings as well-situated over the near- to medium-term and sees limited upside to ratings over the long term. Upward rating movement would likely be predicated on further product and revenue diversification while maintaining earnings and capital at or above current levels.
Negative pressure could be placed on FRC's rating or Outlook should Fitch observe the company loosening its credit standards or if adverse trends emerge in its loan portfolio. FRC's ratings could also be adversely affected if Fitch believes the company is experiencing strategic drift away from its core competencies. This could be evident in acquisitions or in excessive loan growth in asset classes that are not in line with management's stated strategy. Moreover, should Fitch observe FRC's earnings performance begin to lag similarly rated peers due to either asset quality deterioration or because of the need to invest in risk management systems over and above Fitch's expectations, pressure could be placed on either FRC's rating or Outlook.
Finally, although mitigated by an insurance policy purchased in 2014, Fitch would likely view a major earthquake in one of FRC's primary operating markets that led to outsized credit losses as a credit negative that could put pressure on the bank's ratings.
Fitch expects to assign the following rating:
First Republic Bank
--Subordinated debt 'BBB+(EXP)'.
Date of Relevant Committee: Jan. 28, 2016
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Global Bank Rating Criteria (pub. 15 Jul 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884135
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009487
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009487
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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