Fitch Ratings on Oct. 6 downgraded Banca Carige SpA's viability rating to "c" from "cc" and maintained the bank's B-/B long- and short-term issuer default ratings on Rating Watch with negative implications.
The agency affirmed the support rating and support rating floor at 5 and No Floor, respectively.
The struggling Italian lender recently launched a debt swap for bonds worth €510 million, which would be converted to a maximum of around €305.9 million worth of Tier 1 shares, as part of a planned €560 million capital increase. Fitch said the conversion would be considered a distressed debt exchange under its criteria as it will result in a material reduction in terms and is necessary to avoid the wind-down of the bank, Fitch noted.
A distressed debt exchange implies a failure of the bank under Fitch definitions. The agency expects to lower the viability rating to "f" following completion of the capital increase, then will revise it back to a level in line with its then-current risk profile and capitalization.