TEXT-S&P cuts Groupama ratings on coupon news

(The following statement was released by the rating agency) Overview

-- French insurer Groupama announced on Oct. 5, 2012, that it will not pay the next coupon on Oct. 22, 2012, on its junior subordinated notes issued in 2007.

-- We are therefore lowering our issue rating on these notes to 'CC' from 'B', in accordance with our criteria, and placing the ratings on CreditWatch negative. We will further lower this issue rating to 'C' following nonpayment of the coupon.

-- We also believe Groupama's decision heightens the group's business risk and financial risk, particularly its willingness and ability to pay coupons on its other hybrids.

-- We are therefore lowering our financial strength and counterparty credit ratings on Groupama and its guaranteed entities to 'BB-' from 'BB' and our issue ratings on Groupama's other junior subordinated notes to 'CCC' from 'B', and place these ratings on CreditWatch negative.

-- The CreditWatch reflects uncertainties regarding the potential longer-term business and financial implications of Groupama's decision to not pay the upcoming coupon on the 2007 issue.

Rating Action On Oct. 9, 2012, Standard & Poor's Ratings Services lowered its issue rating on French insurer Groupama S.A.'s 2007 junior subordinated notes to 'CC' from 'B'. We also lowered our issue ratings on Groupama's 2005 and 2009 junior subordinated notes to 'CCC' from 'B'.

At the same time, Standard & Poor's lowered its long-term counterparty credit and financial strength ratings on Groupama and its guaranteed subsidiaries to 'BB-' from 'BB', and on strategically important subsidiary Groupama GAN Vie to 'B+' from 'BB-'. We also lowered our long-term counterparty credit rating to 'BB-' from 'BB' and affirmed our 'B' short-term counterparty credit rating on banking subsidiary Groupama Banque. We placed all these ratings on CreditWatch with negative implications.


The downgrade of Groupama's EUR1 billion junior subordinated notes due 2007 follows Groupama's announcement on Friday, Oct. 5, 2012, that it would not pay its coupon at the next interest payment date, Oct. 22, 2012. These notes contain optional payment features that allow the group to cancel coupon payments when Groupama's solvency margin is above 100%. The rating action reflects the application of our criteria in the article "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', and 'CC' Ratings," published Oct. 1, 2012, on Standard & Poor's Global Credit Portal. We will further lower the rating on these notes to 'C' following nonpayment on the coupon, in accordance with our criteria.

The downgrade of Groupama's two other junior subordinated notes issues reflects our view that Groupama's decision to cancel the coupon increases uncertainty regarding its willingness and ability to continue paying interest on these issues. In the same way as the 2007 note issue, these two note issues are classified as having "intermediate" equity content according to our criteria and were issued in 2005 and 2009, for a total of EUR1,250 million. They contain optional deferral features when the solvency margin is above 100%, although we understand the next coupon payment on the 2009 notes is mandatory due to look back provisions relating to the interest payment that took place in July 2012 on the 2005 issue. However, it is possible for the regulator to prevent payment on all issues. The next coupon payment dates on Groupama's 2009 and 2005 notes are respectively Oct. 29, 2012, and July 6, 2013.

The downgrade of Groupama reflects our belief that Groupama's decision to cancel the coupon payment on the 2007 issue is likely to adversely affect Groupama's financial flexibility, albeit partly offset by the relatively small positive impact on the group's solvency margin and liquidity saving. We also believe Groupama's decision could adversely affect the group's business franchise in terms of non-life client retention and life policy persistency.


The CreditWatch placement reflects the uncertainty about the potential impact of Groupama's decision on the group's creditworthiness. In particular, we will assess the potential longer term benefits and costs associated with Groupama's decision, including the potential impact on the group's business and financial profile. In addition, we will assess the progress Groupama is making to improve its solvency position. We aim to resolve or update the CreditWatch action over the next 90 days.

We could potentially lower the long-term ratings on Groupama to the 'B' category if our assessment indicated a weaker business risk and/or financial risk profile than we currently expect. Our rating on its 2007 junior subordinated issue will be lowered to 'C' following the nonpayment of the coupon on the Oct. 22, 2012, interest payment date. Our ratings on its other two junior subordinated issues would be lowered to 'CC' if management notifies investors that coupons on these instruments will also be deferred.

Related Criteria And Research

-- Interactive Ratings Methodology, April 22, 2009

-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008

-- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', and 'CC' Ratings, Oct. 1, 2012

Ratings List Downgraded; CreditWatch Action To From Groupama S.A. Counterparty Credit Rating BB-/Watch Neg/-- BB/Negative/-- Financial Strength Rating BB-/Watch Neg/-- BB/Negative/-- Groupama S.A. Junior Subordinated CC/Watch Neg B Junior Subordinated CCC/Watch Neg B GAN Eurocourtage GAN Assurances Financial Strength Rating BB-/Watch Neg/-- BB/Negative/-- Groupama GAN Vie Counterparty Credit Rating B+/Watch Neg/-- BB-/Negative/-- Financial Strength Rating B+/Watch Neg/-- BB-/Negative/--

Downgraded; CreditWatch Action; Ratings Affirmed

To From Groupama Banque Counterparty Credit Rating BB-/Watch Neg/B BB/Negative/B Certificate Of Deposit BB-/Watch Neg/B BB/B

Ratings Affirmed; CreditWatch Action

To From Groupama Banque Certificate Of Deposit B/Watch Neg B

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at

. All ratings affected by this rating action can be found on Standard & Poor's public Web site at . Use the Ratings search box located in the left column. (New York Ratings Team)

((e-mail: pam.niimi@thomsonreuters.com; Reuters Messaging: pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))