Fitch Ratings has assigned Coface SA's EUR300million dated subordinated Tier 2 notes (FR001400CSY7) a final rating of 'BBB+'.

The final rating follows a review of the final terms and conditions conforming to information already received when Fitch assigned the expected rating on 12 September 2022.

Key Rating Drivers

The notes are rated three notches below Coface SA's Long-Term Issuer Default Rating (IDR) of 'A+' to reflect Fitch's 'poor' recovery assumption (two notches) and assessment of 'moderate' non-performance risk (one notch), in line with Fitch's notching criteria.

The subordinated notes have a maturity of 10 years and a fixed coupon of 6%.

The issue ranks junior to Coface's senior notes and pari passu with the insurer's ordinarily subordinated securities. This level of subordination results in Fitch's 'poor' baseline recovery assumption for the issue.

The notes include a mandatory interest deferral feature that would be triggered if the company or the group is unable to meet its solvency capital requirements (SCR) as defined under the Solvency II directive. Fitch regards the mandatory interest deferral feature as leading to 'moderate' non-performance risk.

The proceeds of the notes are being used, in whole or in part, to finance the buyback - effective on 23 September 2022 - of EUR153.4 million of the company's outstanding EUR380 million guaranteed subordinated 4.125% notes due 27 March 2024, and for general financing purposes. The notes qualify for 100% regulatory capital recognition under Solvency II and extend the company's debt maturity profile.

The notes receive 100% equity credit in Fitch's Prism Factor-Based Model (Prism FBM), due to the application of the agency's 'regulatory override' approach. However, given that it is a dated instrument, the notes are treated as 100% debt in Fitch's financial debt leverage ratio (FLR) calculation.

The new issue and the debt buy-back result in a net debt increase of around EUR147 million, which increases the FLR to an estimated 23.5%, a level just above Fitch's benchmark range of 10%-23% for the 'Aaa rating category. Coface's Fixed Charge Coverage weakens slightly as the new notes are issued on less favourable terms than the notes that are being bought back. The effect is marginally positive for capitalisation. Coface's ratings are not affected by the transaction.

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of Coface's Long-Term IDR would be reflected on the notes' rating

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of Coface's Long-Term IDR would be reflected on the notes' rating

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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