OREANDA-NEWS. Fitch Ratings has assigned Santander UK Group Holdings plc's (SGH; A/Stable/F1/a) 7.375% GBP750m Additional Tier 1 Capital Securities a final 'BB+' rating. The rating is in line with the expected rating assigned on 29 May 2015.

KEY RATING DRIVERS
The notes are additional Tier 1 (AT1) instruments with fully discretionary interest payments and are subject to permanent write-off on breach of a 7% CRD IV common equity Tier 1 (CET1) ratio. The notes are rated five notches below SGH's 'a' Viability Rating (VR) - twice for loss severity to reflect the permanent write-off of the notes on breach of the trigger, and three times for incremental non-performance risk relative to SGH's VR.

The notching for non-performance risk reflects the instruments' fully discretionary interest payment, which Fitch considers the most easily activated form of loss absorption. Under the terms of the notes, the issuer will not make an interest payment if it has insufficient distributable items or if it is insolvent. The issuer will also be subject to restrictions on interest payments if it fails to meet regulatory capital requirements, including breaching its combined buffer capital requirements being phased in from 2016.

Fitch has assigned 100% equity credit to the securities. This reflects their full coupon flexibility, the ability to be written-off well before the bank would become non-viable, their permanent nature and subordination to all senior creditors.

RATING SENSITIVITIES
As the securities are notched from SGH's VR, their rating is sensitive to any change in this rating. The securities' ratings are also sensitive to any change in their notching, which could arise if Fitch changed its assessment of the probability of their non-performance relative to the risk captured in SGH's VR. This could reflect a change in capital management or flexibility or an unexpected shift in regulatory buffers, for example.