Moody’s Investors Service said Friday it has assigned a prospective Aa3 subordinated debt rating to Royal Bank of Canada’s recently announced subordinated debenture issue, the Series 2014-1 reset subordinated debentures.

The prospective Aa3 rating incorporates the position of these notes in relation to the bank’s existing capital structure, the automatic conversion features of the note, and the credit strength of Royal Bank.

Moody’s said that the subordinated debentures will rank equally and rateably with all other subordinated indebtedness at the bank — currently rated Aa3 by Moody’s. However, the debentures include an automatic conversion feature under which they will automatically convert into non-cumulative first preferred shares of Royal Bank, but only in the unlikely event that the Superintendent takes control of the bank, or an application for winding-up order is filed by the Attorney General of Canada, or a winding-up order is granted by a court. As Royal Bank is currently rated Aa2 for long-term deposits and is also rated B+ for bank financial strength, the likelihood of triggering the automatic conversion features of the note are remote, the rating
agency said.


Moody’s stated it has assigned A1 ratings to another issue issued by RBC — RBC Capital Trust II Trust Capital Securities/Series 2013 — which also has a conversion feature in which the securities convert into
non-cumulative preferred shares of the bank.