NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to CoBank, ACB's (CoBank) $300 million non-cumulative perpetual preferred issuance.

The series H non-cumulative perpetual preferred stock has a fixed dividend rate of 6.20 percent until Jan. 1, 2025, after which dividends will accrue at a floating rate.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID

SECURITIES

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.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

In this case, the hybrid instrument is rated five notches lower than CoBanks's Long-term IDR. This reflects the designed loss-absorbing nature of the preferred stock as well as its non-cumulative or deferral feature. Therefore, the company's preferred ratings are primarily sensitive to any change in its long-term IDR.

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

Fitch has assigned the following ratings:

CoBank, ACB

-- Non-Cumulative Preferred 'BBB'.

Additional information is available at 'www.fitchratings.com.'

Applicable Criteria and Related Research:

--'Fitch Affirms United States at 'AAA'; Outlook Stable' (Sep. 19, 2014);

--'Farm Credit System and Farm Credit System Banks' (May, 5 2014);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms' (Dec. 18, 2013);

--'Farm Credit Asset Quality Solid Despite Crop Price Fall' (Aug. 21 2013);

--'Rating Linkages to the U.S. Sovereign Rating' (July 18, 2011).

Applicable Criteria and Related Research:

Farm Credit System and Farm Credit System Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746056

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms - Effective From 20 December 2012 to 18 December 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695715

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=939436

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