The FINANCIAL -- Moody's Investors Service says that the review with direction uncertain on the ratings of Bank Finance and Credit (F&C) will be concluded when debt restructuring terms are finalised with the bank's creditors.

Moody's placed F&C's Caa2 debt and deposit ratings and B3.ua National Scale Rating (NSR) on review with direction uncertain following a downgrade to those levels on 24 March 2009. The downgrade was driven by the bank's default on repayment of a US$70 million syndicated loan.

Moody's ratings review is focusing on the outcome of the debt restructuring negotiations being conducted by the bank with its creditors and the rating agency expects to conclude the review shortly after both parties finalise an agreement.

Moody's previously commented on the ratings review by indicating that it will continue to focus on (i) F&C's liquidity position, (ii) the terms and conditions of the debt restructuring proposed by the bank to its wholesale creditors and (iii) the bank's ability to raise additional capital given that it has declined to participate in the government's recapitalisation programme.

In respect of liquidity, Moody's notes that, while there is no immediate liquidity pressure from deposit outflows, F&C's liquidity position remains weak and it continues to be highly dependent on funding from the National Bank of Ukraine (NBU).

In terms of capitalisation, the rating agency observes that the bank increased its Tier 1 capital by UAH400 million (around US$50 million) in September 2009 via a capital injection from the existing shareholder and by attracting US$7.94 million of subordinated debt. Moody's expects this capital increase to be sufficient for the bank to comply with the minimum regulatory requirements of the NBU in the short term, although it does not regard it as large enough to fully absorb potential credit losses on the loan portfolio.

At the same time, Moody's notes that the bank has not yet reached an agreement with its creditors on the restructuring terms of the US$70 million syndicated loan on which it defaulted in March 2009, as well as on the terms and conditions of repayments of further amounts of wholesale funding that were originally due in H1 2009 and that are now due in 2010.

The details of the restructuring terms proposed by the bank to its creditors on the syndicated loan and on other wholesale debt due in 2009 and 2010 have not been disclosed to Moody's. However, the rating agency notes that if the terms and conditions are such that the expected recovery rate on the bank's debt falls below that implied by a Caa2 rating, the current Caa2 debt rating could be downgraded further. At the same time, the bank's deposit ratings may benefit from the bank's improved post-restructuring liquidity position and from somewhat improved capitalisation.

The last rating action on F&C was implemented on 24 March 2009 when Moody's downgraded the bank's ratings and placed them on review with direction uncertain.

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