OREANDA-NEWS. Fitch Ratings has assigned Banca Popolare di Vicenza's (BB/bb/ Rating Watch Negative) EUR200m subordinated Tier 2 notes due 2025 (ISIN: XS1300456420) a Long-term rating of 'BB-' on Rating Watch Negative (RWN).

The notes, which are issued under the bank's EUR7bn EMTN programme, have an original maturity in 2025 with an issuer call option in 2020. They pay quaterly coupons at 9.5% fixed annual rate until 2020 and will reset to a new fixed rate based on the underlying five-year swap rate plus the initial margin thereafter. The notes will be listed on the Luxemburg Stock Exchange.

The notes qualify as Tier 2 capital under Capital Requirements Directive (CRD) IV. They contain contractual loss absorption features, which will be triggered after the bank becomes non-viable, with no equity conversion. The terms of the notes include a reference to noteholders consenting to be bound by Italian bail-in power.

The notes can be redeemed in whole but not in part at par on 29 September 2020 (call date) or at any time upon a regulatory event or a withholding tax event, subject to regulatory approval and the conditions to redemption.

The subordinated notes are on RWN and therefore at risk of being downgraded shortly, alongside the bank's Viability Rating (VR) and Long-term Issuer Default Rating (IDR) if, following the recently reported losses, Fitch believes that the balance of asset quality and capital profile of the bank, including any capital strengthening action and restructuring initiative, has materially weakened.

KEY RATING DRIVERS
The notes are rated one notch below Banca Popolare di Vicenza's VR of 'bb/RWN', in accordance with Fitch's "Global Banks Rating Criteria", to reflect one notch for loss severity and zero notches for non-performance risk.

The one notch for loss severity reflects the below-average recovery prospects of the notes. Fitch has applied zero notches for incremental non-performance risk, as the write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility prior to non-viability.

RATING SENSITIVITIES
The subordinated debt rating is on RWN and is sensitive to the same factors that may affect the bank's VR and Long-term IDR. Banca Popolare di Vicenza's VR and Long-term IDR was placed on RWN on 15 July 2015 to reflect Fitch's expectation that the bank would report large losses in 1H15 and that it may require additional material capital (see 'Fitch Places Banca Popolare di Vicenza on Rating Watch Negative' available at www.fitchratings.com).

Fitch expects to resolve the RWN on the bank's VR shortly after the bank's board of directors approves a new strategic plan, which we expect to take place in the coming days. Should the VR be downgraded, this would also result in a downgrade of the Tier 2 subordinated debt rating.

The notes' rating is also sensitive to a change in notching should Fitch change its assessment of loss severity or non-performance risk.