Moody’s Reviews Commercial Bank’s Ratings

September 30, 2015

Moody’s Investors Service said they have placed on review for downgrade the ratings of Bermuda Commercial Bank Limited [BCB], including the bank’s long-term deposit and long term issuer ratings of Ba2, the standalone baseline credit assessment [BCA] of ba2, and counterparty risk assessment of Ba1[cr]. The bank’s short term ratings and counterparty risk [CR] assessment of Not Prime and Not Prime[cr], respectively, are unaffected by this action.

The ratings agency said, ”The review for downgrade reflects the concern that BCB is taking on increased asset risk through its September 18th acquisition of Private and Commercial Finance Group PLC [PCFG] from its parent holding, Somers Limited [unrated], a financial services investment holding company. This transaction reflects a major repositioning of BCB’s business and risk profile and shift in strategy. Going forward, auto loans will make up the majority of the bank’s loans.

“In its ratings review, Moody’s will consider the effects of the PCFG acquisition on its risk profile, focusing on the quality of the acquired loans, its growth strategy, and BCB management’s capacity to manage a portfolio of high-yielding loans originated in the United Kingdom. A downgrade could occur if Moody’s determines that the bank’s overall asset risk is significantly impaired.

“The review will also focus on the acquisition’s effect on the bank’s liquidity and capital profiles. The review will also consider the credit benefits of the acquisition in diversifying BCB’s assets and earnings. The ratings could be confirmed if Moody’s believes that the change in BCB’s asset mix does not increase the bank’s risk profile or that the diversification benefits of the transactions outweigh the increase in asset risk.

“PCFG is a UK-based finance house that offers consumer auto finance and small and medium-sized enterprise business and leasing finance. BCB is acquiring the equity and convertible loan notes of PCFG from Somers, and will convert the loan notes to equity as of 30 September, giving it an approximate 75% holding in PCFG, which will then become a consolidated subsidiary of the bank.

“BCB has at the same time sold to its parent its entire holding [42.06%] in West Hamilton Holdings Limited [WHH], a limited liability company that owns two commercial properties, which help to offset most of the cost of the PCFG purchase.

“Moody’s last rating action on Bermuda Commercial Bank Limited was on 21 May 2015, when Moody’s affirmed all the bank’s ratings and assigned the bank Ba1[cr]/NP[cr] Counterparty Risk [CR] assessments under the new rating methodology for banks.

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  1. This can’t be good news :-( Moody’s Investors Service said they have placed on review for downgrade the ratings of Bermuda Commercial Bank Limited [BCB], including the bank’s long-term deposit and long term issuer ratings of Ba2, the standalone baseline credit assessment [BCA] of ba2, and counterparty risk assessment of Ba1[cr]. The bank’s short term ratings and counterparty risk [CR] assessment of Not Prime and Not Prime[cr], respectively, are unaffected by this action.”