Fitch rates Privatbank note B

Fitch Ratings said it assigned U.K. special purpose vehicle Credit Finance plc's upcoming issue of fixed-rate dollar-denominated notes an expected recovery rating of 4 and long-term rating of B. The notes are to be used for the sole purpose of financing a loan to CJSC Privatbank, which is rated issuer default B with positive outlook, short-term B, individual D and support 4.

Privatbank will guarantee the payment of principal and interest under the notes. Credit Finance will grant security over the loan to a trustee, the Bank of New York, for the benefit of noteholders. Final ratings are contingent upon receipt of final documentation conforming to information already received.

Under the agreement, the loan will rank at least equally with the claims of other senior unsecured creditors of Privatbank, save those claims, including retail deposits, that are preferred under Ukrainian law, Fitch said. At end of nine months in 2006, retail deposits accounted for 50% of the bank's total liabilities, which could significantly limit recoveries for Privatbank's other senior creditors in a default scenario, the agency said.

While, in Fitch's view, this risk is not at present sufficient to warrant a recovery rating of below 4, any significant increase in retail funding could lead to a downgrade of the recovery and long-term ratings. Fitch added that successful completion of the transaction would result in a reduction in the proportion of retail funding.

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