A full list of rating actions is at the end of this commentary.
KEY RATING DRIVERS
The downgrade of IBA's IDRs to 'RD' follows the announcement of the bank's restructuring plan, presented on 23 May 2017. The proposed restructuring will represent a distressed debt exchange (DDE) according to Fitch's criteria as it will impose a material reduction in terms on certain senior, third-party creditors through a combination of write-downs, tenor extensions and interest rate reductions.
IBA expects to complete the restructuring following a creditors' meeting in July 2017. However, Fitch has downgraded the ratings to 'RD' now as the bank ceased servicing the obligations, subject to the restructuring, on 10 May 2017, andthis period of non-servicing will continue until the restructuring is complete.
The restructuring will affect $2.2 billion of senior, third-party non-government foreign-currency creditors, but will not apply to deposits or to non-deposit local currency obligations.The rating of IBA's $500 million Eurobond, due in 2019, has been affirmed at 'CCC'.
This reflects Fitch's estimate that recoveries on the bond are likely to fall in the 71%-90% range, which corresponds to a Recovery Rating of '2' and maps to a 'CCC' instrument rating for an issuer in default.
The affirmation of the Support Rating at '5' and the revision of IBA's Support Rating Floor (SRF) to 'No Floor' reflect Fitch's view that although the sovereign had provided support to IBA, it was insufficient to prevent IBA'sdefault.
Fitch expects to review and upgrade the bank's Viability Rating and IDRs once the restructuring is complete and sufficient information is available on the bank's post-restructuring credit profile.
The rating actions are as follows:
Long-Term IDR: downgraded to 'RD' from 'CCC', off RWE
Short-Term IDR: downgraded to 'RD' from 'C', off RWE Viability Rating: 'f', unaffected Support Rating: affirmed at '5', off Rating Watch Positive Support Rating Floor: revised to 'No Floor' from 'CCC', off RWE Senior unsecured debt: affirmed at 'CCC', off RWE; Recovery Rating upgraded to 'RR2' from 'RR4'.