Popular Bank Junior Debt Buyback Prompts Moody's Downgrade

The Cyprus Popular Bank's (CPB) 450 million-euro junior debt buyback has prompted a downgrade from Caa2 to Ca from Moody's rating agency, which defined it as a distressed exchange.

Junior debt is debt which is the lowest priority after other debts if a company falls into liquidation or bankruptcy.

The downgrade reflects Moody's view that CPB is in a weak financial position with low capitalisation after losses suffered from the Greek government's debt exchange with private sector investors. The rating agency also points to the bank's high reliance on funding from central banks - at 27.5 percent of its total assets as of December 2011.

CPB's other ratings are unaffected. Currently the bank has a deposit rating of B3, said Moody's.

The bank is suffering from 2.5 billion euros in losses on its Greek debt holdings and last week, the government stepped in with a plan to recapitalise it with a 1.8 billion euro bailout. The state will now participate in the company's governance with five board members and there is an ongoing effort to raise capital from private investors and possibly from another country before the end of June, by which time, the CPB will have to have enough capital to pass the European Central Bank's stress tests.

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