Fitch Rates CoBank, ACB's $300MM Series H Non-Cumulative Perpetual Preferred Stock 'BBB'

NEW YORK--()--Fitch Ratings has assigned a 'BBB' rating to CoBank, ACB's (CoBank) $300 million non-cumulative perpetual preferred issuance.

The series H non-cumulative perpetual preferred stock has a fixed dividend rate of 6.20 percent until Jan. 1, 2025, after which dividends will accrue at a floating rate.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID

SECURITIES

Bank hybrid securities, such as this preferred issuance, are typically notched down from the issuing entity's Viability Rating. However, in the absence of a Viability Rating (as is the case with CoBank), the hybrids are notched from the issuing entity's long-term IDR ('AA-' for CoBank). The notch differential reflects an assessment of loss severity of the preferred issuance relative to the average recoveries assumed for a typical bank senior debt instrument. The differential is also indicative of incremental non-performance risk.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

In this case, the hybrid instrument is rated five notches lower than CoBanks's Long-term IDR. This reflects the designed loss-absorbing nature of the preferred stock as well as its non-cumulative or deferral feature. Therefore, the company's preferred ratings are primarily sensitive to any change in its long-term IDR.

Proceeds of the offering are intended to increase CoBank's regulatory capital levels and for general corporate purposes.

Fitch has assigned the following ratings:

CoBank, ACB

-- Non-Cumulative Preferred 'BBB'.

Additional information is available at 'www.fitchratings.com.'

Applicable Criteria and Related Research:

--'Fitch Affirms United States at 'AAA'; Outlook Stable' (Sep. 19, 2014);

--'Farm Credit System and Farm Credit System Banks' (May, 5 2014);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms' (Dec. 18, 2013);

--'Farm Credit Asset Quality Solid Despite Crop Price Fall' (Aug. 21 2013);

--'Rating Linkages to the U.S. Sovereign Rating' (July 18, 2011).

Applicable Criteria and Related Research:

Farm Credit System and Farm Credit System Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746056

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms - Effective From 20 December 2012 to 18 December 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695715

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=939436

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1-212-908-1771
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Bain Rumohr, CFA
Director
+1-312-368-3153
or
Chairperson
Julie Solar
Senior Director
+1-312-368-5472
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1-212-908-1771
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Bain Rumohr, CFA
Director
+1-312-368-3153
or
Chairperson
Julie Solar
Senior Director
+1-312-368-5472
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com