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Fitch Rates CoBank, ACB's $400MM Series F Non-Cumulative Perpetual Preferred Stock 'BBB'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB' rating to CoBank, ACB's (CoBank) $400 million non-cumulative perpetual preferred issuance.

Quarterly coupons are payable on Jan. 1, April 1, July 1 and Oct. 1 of each year (commencing on Jan. 1, 2013). The securities are perpetual but are callable on the first day of January, April, July and October beginning Oct. 1, 2022.

Bank hybrid securities, such as this preferred issuance, are typically notched down from the issuing entity's Viability rating. However, in the absence of a Viability rating (as is the case with CoBank), the hybrids are notched from the issuing entity's long-term IDR ('AA-' for CoBank). The notch differential reflects an assessment of loss severity of the preferred issuance relative to the average recoveries assumed for a typical bank senior debt instrument. The differential is also indicative of incremental non-performance risk.

In this case, the hybrid instrument is rated five notches lower than CoBank's long-term Issuer Default Rating (IDR). This reflects the designed loss-absorbing nature of the preferred stock as well as its non-cumulative or deferral feature.

Proceeds of the offering are intended to increase CoBank's regulatory capital levels and for general corporate purposes.

Fitch has affirmed the following ratings with a stable outlook:

CoBank, ACB
-- Non-Cumulative Preferred at 'BBB'.

Additional information is available at www.fitchratings.com' The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
-- 'Global Financial Institutions Criteria' (Aug. 15, 2012);
-- 'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011);
--'Fitch Affirms the Farm Credit System at 'AAA' & Farm Credit System Banks at 'AA-'' (Sept. 11, 2012)

Applicable Criteria and Related Research:
Rating Bank Regulatory Capital and Similar Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656371
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

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Fitch Ratings
Primary Analyst:
Christopher Wolfe, +1-212-908-1771
Managing Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Brandon Bajema, CFA, CPA, +1-312-306-2332
Associate Director
or
Committee Chairperson:
Joe Scott, +1-212-908-1624
Senior Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Source: Fitch Ratings