National Australia Bank Ltd.'s Capital Notes 3 Rated 'BB+'

SYDNEY (S&P Global Ratings) Feb. 11, 2019--S&P Global Ratings today said it 
has assigned its 'BB+' issue credit rating to National Australia Bank Ltd.'s 
(NAB; AA-/Negative/A-1+) proposed hybrid instruments, NAB Capital Notes 3 (NAB 

We rate NAB CN3 four notches below NAB's stand-alone credit profile (SACP) of 
'a-'. The starting point of the SACP reflects our view that it is unlikely 
that the Australian government's support for NAB and other Australian 
banks--if needed--would extend to the hybrid capital instruments issued by the 

To arrive at the rating on the NAB CN3 notes, we deduct four notches off NAB's 
SACP (a-), reflecting the following factors:
  • We deduct one notch for the subordinated status of NAB CN3;
  • Two notches for the risk of partial or untimely payment; and
  • One notch for a nonviability contingent capital feature that would require NAB to convert all or a proportion of NAB-CN3 into ordinary shares or write them off if a nonviability trigger event occurs.
In S&P Global Ratings' capital analysis of NAB, the proposed NAB CN3 notes 
will qualify for intermediate equity content, reflecting our view that they 
would be able to absorb losses, if needed, on a "going-concern basis" through 
nonpayment of coupons, principal write-down, or conversion into common equity, 
without causing a default or wind-up of the bank. Our assessment takes into 
consideration our expectation that NAB-CN3 notes will qualify as fully 
compliant Basel III Additional Tier 1 regulatory capital under Australian 
Prudential Regulation Authority (APRA) standards. In addition, we note that 
the NAB CN3 notes are perpetual instruments with no fixed maturity date.
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