BancorpSouth Bank -- Moody's places BancorpSouth Bank's ratings (long-term issuer Baa2) on review for downgrade following merger announcement

Rating Action: Moody's places BancorpSouth Bank's ratings (long-term issuer Baa2) on review for downgrade following merger announcementGlobal Credit Research - 12 Apr 2021New York, April 12, 2021 -- Moody's Investors Service (Moody's) has placed on review for downgrade all the ratings and assessments, including the baa1 standalone Baseline Credit Assessment (BCA), of BancorpSouth Bank (long-term issuer at Baa2), with the exception of the Prime-2 short-term counterparty risk rating and Prime-2 (cr) short-term counterparty risk assessment, which were affirmed.The rating action follows BancorpSouth's announcement that it will merge with Texas-based Cadence Bancorporation (unrated) in an all-stock transaction. During the review, Moody's will assess the implications of the merger for the existing creditors of BancorpSouth, including the associated integration risks from merging two similarly sized institutions with different business profiles.On Review for Downgrade:..Issuer: BancorpSouth Bank....Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently baa1....Baseline Credit Assessment, Placed on Review for Downgrade, currently baa1....LT Counterparty Risk Assessment, Placed on Review for Downgrade, currently A3(cr)....LT Counterparty Risk Rating (Local Currency), Placed on Review for Downgrade, currently Baa1....LT Counterparty Risk Rating (Foreign Currency), Placed on Review for Downgrade, currently Baa1....LT Issuer Rating, Placed on Review for Downgrade, currently Baa2, Outlook changed to Rating Under Review from Stable....LT Bank Deposits, Placed on Review for Downgrade, currently A2, Outlook changed to Rating Under Review from Stable....ST Bank Deposits, Placed on Review for Downgrade, currently P-1....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ba1(hyb)....Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2 Affirmations: ..Issuer: BancorpSouth Bank ....ST Counterparty Risk Assessment, Affirmed P-2(cr)....ST Counterparty Risk Rating (Local Currency), Affirmed P-2....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-2Outlook Actions:..Issuer: BancorpSouth Bank....Outlook, Changed To Rating Under Review From StableRATINGS RATIONALEThe initiation of the review on the ratings and assessments for BancorpSouth follows the bank's announcement that it will merge with Cadence in an all-stock transaction. The proposed merger will create a Texas and Southeastern regional bank with assets of approximately $44 billion. BancorpSouth's shareholders will own approximately 55% of the combined company, and it will operate under the Cadence name.Moody's has placed BancorpSouth's ratings on review for downgrade because its proposed merger with Cadence is a large undertaking and distinct from the more modestly-sized acquisitions that BancorpSouth previously targeted. Moody's recognizes BancorpSouth's good acquisition integration track record; however, until the acquisition has been fully integrated, BancorpSouth's risk profile will be heightened, particularly as the economic fallout from the coronavirus pandemic is not yet fully known. Moody's noted that Cadence experienced asset quality deterioration in its loan portfolio in 2019 and 2020, particularly in its hospitality, energy and restaurants portfolios. During the review, Moody's will assess the appropriateness of BancorpSouth's credit mark on the acquired assets and the overall asset risk of the combined company.Despite the risks presented by this large merger, Moody's noted that the merger will expand BancorpSouth's footprint into contiguous Southeastern markets and result in a more diversified loan portfolio, given Cadence's historical focus on commercial and industrial lending. This will reduce BancorpSouth's currently high concentration in commercial real estate loans, which is a key credit challenge. At 31 December 2020, BancorpSouth's commercial real estate loans represented a high 3.0x Moody's tangible common equity. Moody's also noted that the combined company expects to have a pro-forma Common Equity Tier 1 capital ratio of approximately 11.3%, which is about 60 basis points higher than BancorpSouth's ratio as of 31 December 2020.Moody's review is unlikely to conclude until after the deal has received regulatory approvals and the transaction closes. The banks' management teams anticipate this will occur in the fourth quarter of 2021.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's review for downgrade will focus on the risks associated with such a large transaction, including the challenges of integrating two institutions with different business profiles, including operational, particularly IT and cultural fit. Given the direction of the ratings review, rating upgrades are unlikely upon completion of the review. BancorpSouth's BCA and ratings could be confirmed upon conclusion of the review if Moody's were to assess that the benefits from the merger would result in a more diversified bank without an increase in risk profile and that the integration risks were adequately mitigated.The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. 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Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Joseph Pucella Senior Vice President Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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