S&P applies BBB to Telia notes

S&P said it assigned its BBB long-term issue rating to the proposed deeply subordinated capital securities that will potentially be issued by Telia Co. AB (A-/Watch Neg/A-2).

The agency placed the issue rating on CreditWatch with negative implications, mirroring the placement of the A- long-term corporate credit rating on Telia on CreditWatch negative on Sept. 21, 2016.

S&P said it classifies the proposed securities as having intermediate equity content until their first call dates (which are more than five years after issuance for the three tranches), at the latest, because of their subordination, permanence, and optional deferability during this period.

Consequently, in its calculation of Telia's credit ratios, the agency treats 50% of the principal outstanding and accrued interest under the hybrids as equity rather than as debt. S&P also treats 50% of the related payments on these securities as equivalent to a common dividend. Both treatments are in line with the hybrid capital criteria.

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