Moody's keeps Fortis convertibles on watch

Moody's Investors Service said the Ba1 rating of the non-cumulative mandatory convertible securities issued by Fortis Bank Nederland (Holding) NV remains on review for possible downgrade.

The agency said the review reflects the risk of payment deferral or default as a result of the remaining optional deferral trigger tied to a future non-payment of dividends on Fortis Holdings' ordinary shares and the potentially deferred repayment of Fortis Capital Co.'s non-cumulative non-voting class A series 1 preference shares.

In March, Fortis Capital decided not to call the preference shares on the first call date, June 29. As a consequence, the shareholders had the option to convert their preference shares into Fortis Holdings shares, and Fortis Holdings reported that 80% of shareholders requested conversion and will be paid in cash. However, Fortis Holdings stated that because the cash settlement results from Fortis Capital's decision not to redeem the instrument, it believes it should be compensated for this payment by Fortis Bank Nederland.

Moody's noted that should a payment default on the preference shares occur, assuming that Fortis Capital would not be in a position to satisfy the obligations, an accelerated conversion of the mandatory convertibles into Fortis Holdings' shares could be triggered.

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