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Rating Action: Moody's affirms ratings of Hewlett-Packard International Bank; outlook stable
Global Credit Research - 27 Jan 2021
London, 27 January 2021 -- Moody's Investors Service ("Moody's") has today affirmed Hewlett-Packard International Bank DAC's (HPIB) long-term deposit ratings at A3, with a stable outlook. Moody's also affirmed the bank's standalone Baseline Credit Assessment (BCA) and Adjusted BCA at baa1. In addition, the agency affirmed the bank's long- and short-term Counterparty Risk Ratings at A3 and Prime-2, and Counterparty Risk Assessments (CR Assessments) at A2(cr) and Prime-1(cr) respectively. The bank's short-term deposit ratings and commercial paper ratings were affirmed at Prime-2.
A full list of affected ratings can be found at the end of this press release.
--- RATIONALE FOR THE BCA AND ADJUSTED BCA
The affirmation of HPIB's BCA at baa1 reflects its solid solvency underpinned by very strong capitalisation supported by full retention of its stable and good profitability, low asset risk and robust residual value risk management. The products financed by HPIB are an essential part of lessee's core operations helping to mitigate against asset risk deterioration and profitability pressures during Covid-19. Lessees are primarily corporates, banks and sovereigns which tend to have strong credit profiles. Additionally, the BCA also incorporates the bank's strong liquidity profile with moderate reliance on market funding, through European Certificates of Deposits (ECDs) and other short-term instruments and a very high regulatory liquidity coverage ratio. Furthermore, the BCA reflects HPIB's mono-line leasing business which will remain heavily reliant on Hewlett Packard Enterprise Company's (HPE, Baa2 stable) (servers, storage, networking, services and software) and HP Inc.'s (HPI, Baa2 stable) (printers and personal computers) products sales and services.
Nonetheless, Moody's positions HPIB's BCA one notch higher than the long-term issuer rating of Baa2 of its parent HPE because as a regulated bank, HPIB is subject to supervision and going concern capital and liquidity requirements, as well as, to Europe's bank resolution regime (Bank Recovery and Resolution Directive, BRRD). In the event of the failure of its parent, Moody's expects that the BRRD would allow for ring-fencing of HPIB. In such an event, HPIB could be liquidated, or its performing assets sold, facilitated by its relatively strong capital base, which would significantly reduce losses for investors.
The affirmation of the Adjusted BCA in line with the BCA reflects Moody's assumption of a high probability of support from HPE which does not lead to an uplift, due to the Baa2 issuer rating of HPE being one notch lower than HPIB's BCA.
--- RATIONALE FOR THE DEPOSIT AND COMMERCIAL PAPER RATINGS
The affirmation of HPIB's long-term deposit ratings at A3 and the affirmation of short-term deposit and commercial paper ratings at Prime-2 are based on the bank's BCA and the results of Moody's Advanced Loss Given Failure (LGF) Analysis. In its LGF analysis, Moody's assumes a residual tangible common equity at failure relative to tangible banking assets of 8%, given the bank's very high level of excess capital relative to its high minimum capital requirement and its consistent track record of full capital retention. As a result, the rating agency considers that, in a resolution scenario, HPIB's residual equity would be higher than the standard 3% of tangible banking assets. In addition, upon further analysis of the bank's deposit funding, Moody's changed the junior deposit assumption to 100% from 26%, as the bank does not have any preferred retail sourced funding. In tandem, Moody's also changed the run-off assumption of junior deposits to 90% from 25%, due to the short-term tenor of money market ECDs and their higher-level of confidence sensitivity relative to relationship based corporate deposits, as reflected by their treatment in the regulatory net stable funding ratio.
Moody's Advanced LGF Analysis indicates that HPIB's deposits and commercial paper are likely to face low loss-given-failure, due to the loss-absorption provided by the bank's sizable residual tangible equity. This results in HPIB's deposits and commercial paper ratings being affirmed at A3 and Prime-2 respectively, one notch above the BCA of baa1. Moody's assumption of a low probability of government support for HPIB's creditors leads to no further uplift.
--- RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on the bank's deposit ratings incorporates Moody's expectation that HPIB will continue to form an integral part of the HPE businesses and maintain its stable earnings generation and strong capitalisation levels. The outlook is also in line with the outlook of its parent HPE.
HPIB's solid capital levels, very low problem loans and strong lessee credit profiles and efficient operations puts it in a strong position against headwinds from Covid-19 induced economic contraction and any expected modest weakening in its assets risk and profitability.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
HPIB's BCA could be upgraded as a result of an upgrade to its parent's rating, combined with the bank maintaining its strong capitalisation levels and effective asset risk management. A positive change in the bank's BCA would likely lead to an upgrade in all ratings.
A downgrade of HPIB's BCA could be caused by (1) a downgrade of its parent's rating or (2) a significant deterioration in the bank's financial fundamentals, in particular, weakening asset quality and residual risks management or a material decline in the bank's level of capital following sizable dividend payments or capital repatriation. A negative movement in the bank's BCA would likely lead to the downgrade of all ratings.
LIST OF AFFECTED RATINGS
..Issuer: Hewlett-Packard International Bank DAC
....Long-term Counterparty Risk Ratings, affirmed A3
....Short-term Counterparty Risk Ratings, affirmed P-2
....Long-term Bank Deposits, affirmed A3, outlook remain Stable
....Short-term Bank Deposits, affirmed P-2
....Long-term Counterparty Risk Assessment, affirmed A2(cr)
....Short-term Counterparty Risk Assessment, affirmed P-1(cr)
....Baseline Credit Assessment, affirmed baa1
....Adjusted Baseline Credit Assessment, affirmed baa1
....Commercial Paper, affirmed P-2
..Outlook Action: ....Outlook remains Stable PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For 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. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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.
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.
Arif Bekiroglu Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Laurie Mayers Associate Managing Director Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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