OREANDA-NEWS. Fitch Ratings has assigned Santander UK Group Holdings plc (SGH) a Long-term Issuer Default Rating (IDR) of 'A' with a Stable Outlook, a Short-term IDR of 'F1', a Viability Rating of 'a' and a Support Rating (SR) of '2'.

Santander UK plc's (San UK) ratings are not affected by today's rating actions.

SGH was created in 2013 and became the holding company for San UK in January 2014. SGH owns 100% of San UK, and is in turn wholly indirectly owned by the Spanish banking group Banco Santander SA (A-/Stable/F2/a-).

The establishment of SGH as an intermediate holding company is part of a reorganisation that is aimed at improving the group's resolvability. Fitch believes that this reorganisation would facilitate a resolution under the UK's regulator's preferred 'single-point-of-entry' strategy once there is sufficient debt issued by the holding company. It should allow for the recapitalisation of San UK through the bail-in of intragroup liabilities to SGH. Executed successfully, such a strategy would minimise disruption to San UK and allow it to continue to operate without defaulting on external senior liabilities.

KEY RATING DRIVERS - VR AND IDRS

SGH's IDRs and VR are aligned with those of its operating subsidiary, San UK, reflecting SGH's role as the group's holding company. SGH's consolidated total assets and liabilities at end-2014 were essentially equal to those reported by San UK. The unconsolidated balance sheet of SGH is limited to its investment in San UK and GBP800m in additional Tier 1 (AT1) notes. The AT1 notes have been down-streamed in full to San UK and there is currently no holding company double leverage.

We expect the holding company to issue an increasing proportion of debt, including further AT1 and other hybrid instruments and senior debt. This will result in a debt buffer building up at the holding company over time. We expect the holding company to maintain a prudent liquidity policy, which should be helped by existing policies in place to manage liquidity within San UK's operations.

The equalisation of SGH's VR and IDRs with San UK's also reflects our view that the UK regulator considers the group as a consolidated entity and that the holding company is incorporated in the same jurisdiction as its main banking subsidiary.

RATING SENSITIVITIES - VR AND IDRS

As SGH's VR and IDRs are equalised with San UK's, they are sensitive to the same factors as San UK's. San UK's VR and IDRs are primarily based on the bank's conservative risk appetite, strong market franchise, improving business diversification, healthy asset quality, and sound liquidity and capitalisation. They also reflect the bank's limited geographic diversification given its focus on the UK.

For a full description of San UK's key rating drivers and sensitivities see "Fitch Affirms Santander UK's IDR at 'A' dated 24 July 2014, available on www.fitchratings.com.

SGH's VR and IDRs could be notched down from San UK's ratings if, for example, double leverage at the holding company increases above 120%, which we do not expect. Over time, further expected debt issuance by SGH could change the relative position of senior creditors of different group entities. However, this will depend on the amounts and form of debt issued by SGH and the ranking of down-streamed funds relative to other San UK senior creditors and could be positive for San UK's IDRs, rather than negative for SGH's IDRs.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING

SGH's SR reflects Fitch's view that support from Banco Santander for the holding company, should it ever be needed, is highly probable. We believe that due to the strategic importance of the UK business to Banco Santander and the high reputational risk associated with failure to support UK operations, Banco Santander would have a high propensity to provide such support.

The likelihood of providing support, however, is somewhat limited by the ability of Banco Santander to provide such support given that the group's UK operations comprise a material portion of the parent's balance sheet.

The Support Rating is therefore sensitive to both a change in the strategic importance of the UK banking group to its parent, which is currently not envisaged, and Banco Santander's ability to provide such support.