Fitch Assigns Grenke AG's EUR200 million Additional Tier 1 Notes 'BB-' Final Rating

Published: 2025-01-14 06:40:18 ET GLJ.DE

Fitch Ratings has assigned Grenke AG's (BBB/Stable) issue of EUR200 million additional Tier 1 (AT1) notes a final long-term rating of 'BB-'.

Fitch expects the notes proceeds to be used to redeem Grenke's existing AT1 notes of EUR200 million in aggregate and, consequently, no material change to Grenke's capitalisation and issuer ratings (see 'Fitch Affirms Grenke AG at 'BBB', Outlook Stable', published on 5 June 2024 and available on www.fitchratings.com for applicable key rating drivers and sensitivities relating to Grenke's issuer ratings).

Fitch rates Grenke as finance and leasing company under its Non-Bank Financial Institutions Rating Criteria. However, given Grenke's prudentially-regulated status and the relevance of its deposit-taking bank subsidiary (Grenke Bank AG), Fitch uses its Bank Rating Criteria to assess certain aspects of Grenke's credit profile, such as the operating environment, capitalisation and leverage, funding and liquidity - and has also assigned ratings to the AT1 issuance under Fitch's Bank Rating Criteria.

Key Rating Drivers

Grenke's AT1 notes are rated four notches below its 'BBB' Long-Term IDR, comprising two notches for loss severity, due to deep subordination, and two notches for incremental non-performance risk relative to the IDR, given their fully discretionary, non-cumulative coupons. The notching is in line with Fitch's baseline notching for AT1 instruments as outlined in its Bank Rating Criteria.

Fitch has not applied additional notching for non-performance risk as Grenke operates with comfortable headroom above its mandatory coupon-omission trigger, which we expect to continue. At end-September 2024, the buffer above the maximum distributable amount restriction point was 523bp of risk-weighted assets of EUR6.6 billion. In addition, the AT1 notes are subject to an available distributable items (ADI) provision, with end-2023 ADI of EUR477.4 million covering annual estimated interest expenses by around 11x.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The notes would likely be downgraded if Grenke's Long-Term IDR is downgraded. The rating could also be downgraded if non-performance risk increases relative to the risk captured in its Long-Term IDR. This could result from an unfavourable change in capital management or flexibility, or an unexpected decline in capital buffers over regulatory requirements, for example.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The notes would likely be upgraded if Grenke's Long-Term IDR is upgraded.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

Grenke AG

junior subordinated

BB-

New Rating

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com