S&P Assigns ‘A’ Rating to Hannover Re Debt Issue

Standard & Poor’s Ratings Services announced that it has assigned its “A” long-term debt rating to the proposed benchmark size fixed- to floating-rate junior subordinated debt to be issued by Hannover Finance (Luxembourg) S.A., a subsidiary of Hannover Rückversicherung AG (Hannover Re; AA-/Stable/–) (See IJ Website May 12).

“Hannover Re will unconditionally and irrevocably guarantee the issue on a subordinated basis,” said S&P. “The rating is based on draft documentation and is subject to Standard & Poor’s receiving satisfactory final documentation. The proposed notes are undated, and callable after 10 years and on every coupon date thereafter.

“The rating on the notes is driven by the ratings on the guarantor, Hannover Re, and reflects the terms of the issue–in particular, its subordinated ranking,” indicated S&P credit analyst Simon Marshall. “The guarantee obligations are subordinated to senior creditors of the guarantor and to dated subordinated creditors, and interest on the notes is deferrable on a noncumulative basis.”

S&P also noted: “In addition to management’s option to defer interest under certain circumstances, there is mandatory suspension of interest in the event of either payment of interest resulting in a breach of the minimum solvency requirements of German law or the regulator prohibiting payment of interest or other distributions on securities ranking pari passu or junior to the bond. Consequently, the notes meet Standard & Poor’s criteria for hybrid equity and will receive full hybrid equity treatment up to the normal tolerance of 15 percent of total adjusted capital. BaFin, the German regulator, is expected to treat the bond as Tier 1 capital. Holders of the existing 350 million euros [$448 million) variable-interest subordinated notes due 2031 (rated ‘A’) will be invited to exchange those notes for the new issue. The longer tenor of the new issue is expected to be a strong incentive for existing bondholders to make the exchange. If successful, the issue will take advantage of current favorable market conditions and improve the quality of Hannover Re’s capital.”