SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings for Tanner Servicios Financieros S.A. (Tanner):
--Long-term Issuer Default Rating (IDR) at 'BBB-';
--Short-term IDR at 'F3';
--Local Currency IDR at 'BBB-'; and
--Local Currency Short-Term Issuer Default Rating at 'F3'.
In addition, Fitch has also upgraded Tanner's Long-Term National Rating to 'A+ (cl)' from 'A (cl)' and affirmed Tanner's Short- Term National Rating at 'N1'.
The Outlook of all the ratings is Stable.
A full list of ratings follows at the end this press release.
KEY RATING FACTORS
The upgrade in the Long-Term National Ratings reflects the positive effect of a recent sizable capital injection received by the company and its intention to operate with lower leverage ratios in the medium term. Such capital increase will provide the company with additional cushion to expand its current business and also to cover unexpected losses in the future. Compared to other issuers, Tanner's international ratings remain well aligned even considered the recent capital injection; hence, its international ratings were affirmed.
In general, both the national and international scale ratings reflect Tanner's consistent performance throughout the economic cycles, which has been characterized by an adequate profitability relative to its business niche, adequate portfolio quality and a good management of its wholesale funding, with good matching levels in terms of maturities, currency and costs. The levels of capital for Tanner historically have been considered adequate and the fast growth pace for the company has been accompanied of a conservative profit retention policy to fund its expansion; the aforementioned new capital injection will help the company to fund its expansion and preserve a strong capital base.
Tanner's ratings also factor in the challenges associated to its relative smaller size and its concentration of operations in a few business niches, which strongly exposes the company to changes in the economic cycle when compared to other financial institutions of a universal nature. At the same time, the company still faces the challenges managing the maturity terms of its loans portfolio, which has grown considerably in the past years and currently does not necessarily show its average long-term quality level.
The recent capital increase, by the equivalent of US$ 200 million, entered with the incorporation to the property (27%) of 'Group Capital', significantly reduced Tanner's leverage ratios. As a result, the ratio of tangible equity to tangible assets increased to 36.9% from 16.9%. Fitch estimates that, under a scenario of rapid growth in loans and a policy of retaining 50% of profits, debt metrics would only converge to historic levels in 2021.
Tanner has shown strong profitability ratios throughout the economic cycles (average ROAA at 4.36% from 2009), which is aligned with the risk profile of the covered segment. Profitability will continue to be supported by the net inflow of interests which have been stable historically, while the contribution from non-financial income, such as fees, will remain low (average of 9% of gross income from 2009), which compares unfavorably with financial entities of a universal nature.
The adequate management of credit risk, business know-how, the diversification by client and the accelerated growth in loans has favored portfolio quality. However, in order to avoid pressures on the quality of the portfolio, Fitch thinks it is key the consolidation of the automobile credit origination tool, while for the factoring segment, the entity should advance in establishing maximum credit limits by debtor in order to stop the deterioration of a particular debtor from generating losses that could considerably affect its performance and/or solvency. The reserve model and level are aligned with the portfolio risk profile, while the consolidation of the improvements in the collection area is key, considering the maturity level of the recent growth pace.
Liquidity, strengthened by the capital increase, would continue to be favored by the adequate management of the maturity of its assets and liabilities, thus increasing the monthly cash flow derived from the high rotation from factoring, the diversification of fund sources (banking debt, short and long term issues, both in the local and international market), as well as the heavier weight of the long term debt within its liabilities.
Recent consolidation within only one area to manage risks, the continuous improvement of the risk tools, and the creation of a risk committee that reports directly to the Board, would benefit the efficiency and effectiveness of its management.
Tanner adequately mitigates market risk. The mismatch between assets and liabilities is positive, while the exposition to rate variations and exchange type are low and also adequately mitigated; a tendency that would remain in the medium term.
RATINGS SENSITIVITY
Considering the current business model applied by the company, which shows concentrations of important operations, future positive changes in the rating are not contemplated in the short term. However, a higher diversification in its income, assets and funding sources, could contribute to improve its ratings in the long term.
Negative rating actions would be linked to a stronger deterioration than expected in asset quality ratios (delinquency over 5%); which pressure profitability (ROAA below 2%). A sustained reduction in capitalization (tangible equity to tangible assets below 18%) or a considerably decrease in financial flexibility and liquidity, could also result in lower ratings.
PROFILE
Tanner, former Factorline S.A. is an integral provider of non-banking financial services for small and medium-sized companies. Its main business lines are factoring, automobile credit and leasing. Tanner holds a leadership position in the factoring market, and it holds the largest non-banking offer for the sector in the country with 9% as of June 2013, among the entities grouped in the Asociacion Chilena de Empresas de Factoring A.G (Achef). At the end of 2012, the company had 42,674 clients, with 985 customer service collaborators, as well as 34 offices along the country.
Fitch affirmed the following ratings:
--Long-Term Issuer Default Rating at 'BBB-'; Outlook Stable;
--Short-Term Issuer Default Rating at 'F3';
--Local Currency Long-Term Issuer Default Rating at 'BBB-';
--Local Currency Short-Term Issuer Default Rating at 'F3';
--Senior Unsecured Notes Due 2018 at 'BBB-'
Fitch has upgraded the following ratings:
--Long Term National Rating to 'A+ (cl)' from 'A (cl)'; Outlook Stable';
--Long-term bond program to 'A+ (cl)' from 'A (cl)';
--Long-term commercial paper program to 'A+ (cl)' from 'A (cl)';
Fitch affirms the following rating:
--Short-term commercial paper program at 'N1(cl)';
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Ratings Criteria (Aug. 15, 2012);
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);
--'Evaluating Corporate Governance' (Dec. 12 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=808216
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