OREANDA-NEWS. Fitch Ratings has assigned an expected rating of 'A+(EXP)' to National Australia Bank Limited's (NAB; AA-/Stable) AUD1.1bn Basel-III compliant Tier 2 instrument to be offered to domestic and international institutional investors, due to settle on 26 March 2015.

Final maturity is 26 March 2025, although an earlier redemption on 26 March 2020 and each interest payment date thereafter up to but excluding the maturity date is possible, subject to prior written approval by the Australian Prudential Regulation Authority (APRA). The notes include a non-viability clause and will qualify as regulatory Tier 2 capital for NAB.

KEY RATING DRIVERS & RATING SENSITIVITIES

The instrument is classified as subordinated debt and is rated one notch below NAB's Viability Rating (VR) of 'aa-' to reflect its below-average recovery prospects compared to senior unsecured instruments. The notes would convert to equity in part or in full should APRA deem that without the conversion NAB were non-viable. All of the notes would convert to equity if NAB were to need a public sector injection of capital to avoid non-viability. The proportion of the notes required to be converted to equity would be written off should NAB be unable to convert the notes to equity within five business days of the trigger event date. No additional notching from the VR for non-performance is applied as the VR already captures the point of non-viability. Under Fitch's methodology, the instrument does not qualify for any equity credit.

NAB's subordinated debt ratings are broadly sensitive to the same considerations that might affect the bank's VR. For more information about the rating drivers and sensitivities for NAB's VR, please see the rating action commentary "Fitch Affirms Australia's Four Major Banks" dated 17 June 2014 and available at www.fitchratings.com.