Fitch upgrades illimity to ’BB’ following IFIS takeover

Investing.com -- Fitch Ratings has upgraded illimity Bank (BIT:ILTY) S.p.A.’s Long-Term Issuer Default Rating (IDR) and long-term senior preferred debt to ’BB’ from ’BB-’ while maintaining a Rating Watch Positive (RWP).

The upgrade follows illimity’s successful takeover by Banca IFIS S.p.A., which now holds approximately 93% of illimity’s share capital. Fitch has also upgraded illimity’s long-term deposit and Tier 2 ratings by one notch.

As a result of the ownership change, Fitch has withdrawn illimity’s Government Support Rating of ’no support’ and assigned a Shareholder Support Rating (SSR) of ’bb’ on Rating Watch Positive. This reflects that IFIS has become the primary source of extraordinary support for illimity.

The RWP on illimity’s ratings indicates potential for further upgrades once Fitch gains more clarity about the merger process after ongoing due diligence is completed. This resolution may take longer than Fitch’s typical six-month timeframe.

Fitch considers illimity strategically important to IFIS as the acquisition adds scale and business diversification to IFIS’s core operations. The SSR is positioned one notch below IFIS’s Long-Term IDR of ’BB+/Stable’, reflecting illimity’s large relative size and expectations that integration will be challenging and gradual.

The rating agency believes IFIS has a high propensity to support illimity, noting that a default would create significant reputational risk. Fitch expects the enlarged group to adopt a combined resolution plan, making support for the subsidiary likely under a single point-of-entry model.

Fitch anticipates illimity will be merged into IFIS by 2026 with full operational integration by 2027. However, significant execution risks exist due to illimity’s size (about 40% of the combined entity’s assets at end-2024), its complex legal structure, and weak performance record.

The acquisition strengthens IFIS’s position in specialty finance with a focus on SMEs, with both institutions having complementary sector focuses that should generate significant synergies.

Illimity’s Viability Rating remains unchanged as Fitch does not consider the acquisition to have an immediate significant impact on the bank’s standalone credit profile.

Fitch expects to withdraw illimity’s issuer ratings when the merger into IFIS is completed, as the bank will cease to exist as a separate legal entity.

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