October 5, 2017 / 7:59 PM / a year ago

Fitch Places Popular Inc. on Rating Watch Negative

(The following statement was released by the rating agency) NEW YORK, October 05 (Fitch) Fitch Ratings has placed Popular Inc.'s (BPOP) 'BB-' Long-Term Issuer Default Rating (IDR), 'B' Short-Term IDR, and 'bb-' Viability Rating (VR) on Rating Watch Negative due to the uncertainty of the impact caused by Hurricane Maria on Puerto Rico. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS IDRs, VRs, AND SENIOR DEBT The ratings have been placed on Negative Watch because Fitch believes that the challenges posed by Hurricane Maria, including massive destruction to vital infrastructure, homes, businesses, and other property, could make it difficult for BPOP to maintain stable asset quality, positive core earnings, and improving deposit funding metrics, in line with our expectations for the current rating level. Historically, BPOP's ratings have incorporated the significant challenges posed by the weak operating environment in Puerto Rico. However, going forward, Fitch expects the destruction caused by Hurricane Maria to further weaken the operating environment. Fitch also expects the hurricane's impact will complicate the Commonwealth of Puerto Rico's efforts to reverse outward migration, generate sustainable economic growth, and address its fiscal and debt imbalances. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '5' and Support Ratings Floor of 'NF' reflect Fitch's view that BPOP is not considered systemically important, and therefore the probability of support is unlikely. The IDRs and VRs do not incorporate any support. LONG- AND SHORT-TERM DEPOSIT RATINGS BPOP's uninsured deposit ratings at its subsidiary banks are rated one notch higher than BPOP's IDR and senior unsecured debt rating because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Hybrid capital instruments issued by BPOP are notched down from the company's VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which may vary considerably. BPOP's preferred stock and trust preferred stock rating at 'B-' is three notches below its Viability Rating (VR) of 'bb-', in accordance with Fitch's assessment of the instruments' non-performance and loss severity risk profiles for issuers that have VRs rated below 'bb+'. HOLDING COMPANY BPOP has a bank holding company (BHC) structure with the bank as the main subsidiary. IDRs and VRs are equalized with those of the operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Double leverage is below 120% for the BPOP parent company. SUBSIDIARY AND AFFILIATED COMPANIES All of the BPOP entities factor in a high probability of support from the parent. This reflects the fact that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, financial and reputational incentives to avoid subsidiary defaults. RATING SENSITIVITIES IDRs, VRs, AND SENIOR DEBT Fitch expects to resolve the Rating Watch Negative within the next six months. Fitch also expect that the bank's quarterly financial results as well as disclosures from the U.S. Federal Government and the Commonwealth of Puerto Rico will bring greater visibility into the potential short- and long-term effects that this unprecedented event may have on financial performance and ultimately the company's ratings. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. LONG- AND SHORT-TERM DEPOSIT RATINGS The ratings of long- and short-term deposits issued by BPOP subsidiaries are primarily sensitive to any change in the company's IDRs. This means that should the Long-Term IDR be downgraded, deposit ratings could be similarly affected. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings of hybrid securities are sensitive to any change in BPOP's VR or to changes in BPOP's propensity to make coupon payments that are permitted but not compulsory under the instruments' documentation. HOLDING COMPANY If BPOP became undercapitalized or increased double leverage significantly, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. SUBSIDIARY AND AFFILIATED COMPANIES As the IDRs and VRs of the subsidiaries are equalized with those of BPOP to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in BPOP's IDRs. Fitch has placed the following ratings on Rating Watch Negative: Popular, Inc. --Long-term IDR 'BB-'; --Senior unsecured 'BB-'; --Short-term IDR 'B'; --Short-term Debt 'B'. --Viability rating 'bb-'; --Preferred stock 'B-'. Popular North America, Inc. --Long-term IDR 'BB-'; --Senior unsecured 'BB-'; --Short-term IDR 'B'; --Short-term Debt at B --Viability rating 'bb-'. Banco Popular North America --Long-term IDR 'BB-'; --Long-term deposits 'BB'; --Short-term IDR 'B'; --Short-term deposits 'B'. --Viability rating 'bb-'. Banco Popular de Puerto Rico --Long-term IDR 'BB-'; --Short-term IDR 'B'; --Short-term deposits 'B'; --Viability rating 'bb-'. BanPonce Trust I --Trust preferred 'B-'. Popular Capital Trust I --Trust preferred 'B-'. Popular Capital Trust II --Trust preferred 'B-'. Popular North America Capital Trust I --Trust preferred 'B-'. Popular Capital Trust III --Trust preferred 'B-' Fitch has affirmed the following ratings: Popular, Inc. --Support '5' --Support floor 'NF'. Popular North America, Inc. --Support '5' --Support floor 'NF'. Banco Popular North America --Support '5' --Support floor 'NF'. Banco Popular de Puerto Rico --Support '5' --Support floor 'NF'. Contact: Primary Analyst Stefan Kahandaliyanage, CFA Associate Director +1-646-582-4918 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Doriana Gamboa Senior Director +1-212-908-0865 Committee Chairperson Julie Solar Senior Director +1-312-368-5472 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. 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