OREANDA-NEWS. Fitch Ratings has assigned Lloyds Banking Group's (LBG; A+/Stable/F1/a) upcoming issue of senior unsecured notes a rating of 'A+ '.

KEY RATING DRIVERS

The notes are rated in line with LBG's Issuer Default Rating (IDR). The notes are direct, unsecured and senior obligations of the issuer.

The terms of the notes include acknowledgement of the UK resolution power with noteholders agreeing to be bound by any UK regulatory bail-in power including the partial or full write-down and cancellation of interest and/or principal.

LBG intends to downstream the proceeds to its operating subsidiaries, which include Lloyds Bank plc, in the form of internal notes with identical subordination (senior unsecured) and maturity, therefore avoiding the build-up of additional double leverage at the holding company level.

RATING SENSITIVITIES

IDRS AND SENIOR DEBT

The notes are rated in line with LBG's Long-Term IDR and are therefore primarily sensitive to any change to this rating. LBG's Long-Term IDR is notched up once from its 'a' Viability Rating (VR) because we believe that the risk of default on senior obligations, as measured by the Long-Term IDRs, is lower than the risk of LBG failing, as measured by its VRs. This is because of the large buffer of 'qualifying junior debt' within the group that could be made available to protect senior obligations from default in case of failure, either under a resolution process or as part of a private sector solution, for instance in the form of a distressed debt exchange, to avoid a resolution action. LBG's VR is equalised with its operating subsidiaries' VRs.

Additional double leverage at the holding company, for instance through mismatches in downstreaming the proceeds to its operating entities, could result in its IDR being rated below its operating subsidiaries, and hence a downgrade of the securities.

LBG has stated that it intends to issue bail-in senior debt out of its holding company, which is in line with the Prudential Regulation Authority's preference for a single point of entry approach to bank resolution.