Novo Banco: credit risk increases after Moody’s warning

  • ECO News
  • 6 April 2017

The risk associated with NB's senior bonds rocketed with the voluntary debt exchange; Moody's believes there are serious risks of partial default on these securities.

Novo Banco‘s senior bonds rate took off this Thursday, to its highest amount since almost two months, after Moody’s downgraded these titles’ rating to an almost default level. As far as the agency is concerned, the bank’s senior bondholders are seriously risking loosing money, because of doubts concerning the voluntary senior bond exchange operation that the Bank of Portugal announced last Friday, in order to close the agreement with Lone Star.

The yield on bonds increased to 16.2%, its highest percentage since mid February. It has been rising since the end of last week when the Portuguese authorities announced a proposal for the bank’s senior creditors on a voluntary bond exchange for other securities which will allow Novo Banco to have a 500 million euros capital reinforcement.

The rating agency — which classifies NB‘s senior bonds as Caa2, with high credit risk — “views this offer as a distressed exchange”, because of the imminent threat of losses the operation represents for investors.

Interests rocket due to the market’s suspicion concerning debt exchange

Source: Bloomberg (percentage values)

This Wednesday, in a press release, Moody’s explained: “The downgrade of the bank’s long-term senior debt rating to Caa2 on review for further downgrade reflects Moody’s expectation of the losses that Novo Banco‘s senior bondholders are likely to face as part of the Liability Management Exercise” — meaning the bond exchange the Bank of Portugal announced this Friday for the conclusion of the sale of the institution to Lone Star. “The rating agency considers this offer to be a distressed exchange that will be made as a means to avoid Novo Banco’s liquidation and close the sale process”, the press release adds.