Moody's on Oct. 6 upgraded Novo Banco SA's baseline and adjusted baseline credit assessments to "caa2" from "ca."
At the same time, the agency extended the review for downgrade on the Portuguese lender's Caa1 long-term deposit rating and confirmed its B3(cr) long-term counterparty risk assessment. Moody's also confirmed the bank's Caa2 long-term senior unsecured debt rating and changed the outlook to positive from rating under review.
The ratings actions follow Novo Banco's announcement of the outcome of the liability management exercise on its senior debt and reflects the closing of the acquisition by Lone Star Funds of a 75% stake in Novo Banco. It concludes the review for downgrade on the bank's long-term senior debt ratings, Moody's said.
The agency said the upgrade reflects its view that Novo Banco's standalone creditworthiness has improved following its recapitalization due to the liability management exercise and the acquisition by Lone Star. However, Moody's noted that significant challenges to the bank's risk profile remain despite its sale to Lone Star, reflecting the high degree of uncertainty around Novo Banco's medium-term strategy.
Meanwhile, the extension of the review for downgrade on the long-term deposit rating reflects the upgrade of the Novo Banco's baseline credit assessment, the assessment of a low probability of government support for the bank and the downside risks to its deposit ratings stemming from the lower loss absorption provided by the reduced volume of senior debt resulting from the liability management exercise, Moody's said.
In addition, the agency said the revision of the outlook on the senior unsecured debt rating to positive from rating under review reflects the potential benefit to Novo Banco's baseline credit assessment if the acquisition and recapitalization by Lone Star results in a further de-risking of the bank's balance sheet and restructuring of its operations, which Moody's believes will be key in ensuring its sustained viability and future profitability.