Fitch Affirms Barclays Global Collateralised MTN Series Programme Rating at 'A'/'F1'
KEY RATING DRIVERS
The programme rating on the GCMTN series is driven by and directly linked to Barclays' Short- and Long-term Issuer Default Ratings.
As noted in Fitch's rating definitions for corporate finance, short-term debt ratings consider the short-term vulnerability to default of the rated entity or security stream and relates to the its capacity to meet financial obligations in accordance with the documentation governing the relevant obligation and do not factor in loss severity assumptions. Conversely, long-term debt ratings of individual securities or financial obligations of a corporate issuer address relative vulnerability to default on an ordinal scale. In addition, for financial obligations in corporate finance, a measure of recovery given default on that liability is also included in the rating assessment.
When affirming the long-term programme rating on the series, Fitch assumed no rating uplift based on a recovery from the repo collateral. This reflects that collateral schedules are negotiated with potential noteholders and thus there exists variability and an unknown quality of the repo collateral, which, until collateral schedules are negotiated, also may be subject to an unknown diversification framework and unknown margin requirements relative to Fitch's market value and closed-end fund rating criteria.
Fitch may, from time to time, assign ratings to individual term notes issued under the GCMTN series, which could lead to higher long-term ratings if warranted by the recovery analysis in instances where the collateral schedules are sufficiently precise and conservative. To date all notes issued by the programme have been backed by collateral of insufficient quality to warrant any rating uplift over Barclays' long-term debt rating.
THE GCMTN Series
Barclays will periodically issue different classes of notes under the GCMTN series up to total issuance of USD10bn. Proceeds will be used to make advances to Barclays CCP Funding LLP (the LLP), which will in turn use the proceeds to enter into tri-party repurchase agreements with Barclays, Barclays Capital Securities Ltd., Barclays Capital Inc. and other sellers that may be appointed from time to time. The repurchase agreements may be backed by a wide variety of government, sovereign, supranational, agency, corporate, structured finance, convertible bond and equity securities that will be denominated in various currencies and subject to daily margin requirements. Eligible assets and margin haircuts are defined in the repo collateral schedules and will vary for each class of notes.
Title over repurchase agreement collateral is transferred to the security trustee, The Bank of New York Mellon (BNY, AA-/Stable/F1+) and held on behalf of each noteholder. Each note is allocated a specific, segregated collateral account, held with a custodian bank (JPMorgan Chase & Co (A+/Stable/F1), BNY or Clearstream Banking, Luxembourg (AA/Stable/F1+) depending on the note series).
In the event that the LLP defaults or there is a repurchase event of default by a seller combined with an issuer event of default, the related classes of notes will be accelerated, becoming due and payable immediately. If not paid, noteholders will receive the proceeds of the collateral liquidation and if the proceeds are insufficient to meet their claims in full, they will continue to rank as unsecured creditors of Barclays. There is no minimum timeframe, however, for collateral liquidation which exposes noteholders to an uncertain level of market risk with respect to the repo collateral.
It should be noted that the ratings are assigned to the series (as a programme rating) and not to the notes issued under the series. There is no assurance that notes issued under the series will be assigned a rating, or that the rating assigned to a specific issue under the series will have the same rating as the programme rating assigned to the series.
Additional information is available in Fitch's new issue report titled 'Global Collateralised Medium Term Notes Issued by Barclays Bank plc' (7 December 2012).
The rating sensitivities are identical to those of Barclays Bank plc (see 'Fitch Affirms Barclays Bank at 'A'; Stable Outlook', dated 19 May 2015 at www.fitchratings.com).