Moody’s reviews KeyCorp, First Niagara

Moody's Investors Service said it placed the ratings of KeyCorp and its lead bank subsidiary, KeyBank NA on review for downgrade following the announcement that it agreed to acquire First Niagara Financial Group in a stock and cash transaction expected to close in third quarter 2016.

Key Bank has long-term bank deposit ratings of Aa3, senior unsecured debt ratings of A3, subordinated debt ratings of Baa1, a standalone baseline credit assessment (BCA) of a3 and adjusted BCA of a3 and long-term counterparty risk (CR) assessments of A2 (cr).

KeyCorp has issuer and senior unsecured debt ratings of Baa1 and preferred stock ratings of Baa3 (hyb). KeyCorp Capital I, KeyCorp Capital II, and KeyCorp Capital III are all rated Baa2(hyb) for backed preferred stock.

The bank's short term Prime-1 deposit ratings and counterparty risk (CR) assessment of Prime-1(cr), and the holding company's provisional Prime-2 short-term ratings are unaffected.

In a related action, the long- and short-term ratings of First Niagara Financial Group Inc. and its lead bank subsidiary, First Niagara Bank, NA were placed on review for upgrade. First Niagara has long and short-term bank deposit ratings of Baa1 and Prime-2, respectively, a standalone baseline credit assessment of baa3 and adjusted BCA of baa3, and long and short-term CR Assessments of Baa2(cr) and Prime-2(cr). First Niagara Financial Group has senior unsecured and subordinated debt ratings of Ba1 and a preferred stock rating of Ba3(hyb).

Moody’s said the review for downgrade on KeyCorp's long-term ratings reflects its view that Key's planned acquisition of First Niagara could notably increase Key's operational and asset risks. The review will focus on Key's integration plans and the appropriateness of Key's credit mark on the assets it will acquire.

The agency noted that First Niagara has been an active acquirer in recent years. This subjects Key to an additional layer of risk, including the potential for unexpected litigation and other integration surprises.

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