New York, October 23, 2018 -- Moody's Investors Service has affirmed today the B2 long-term local
currency issuer and long-term foreign currency senior secured ratings
of Gilex Holding S.a.r.l. (Gilex).
The following ratings were affirmed:
- Long-term global local currency issuer rating of B2,
stable
- Long-term global foreign currency senior secured rating
of B2, stable
-Outlook, Stable
RATINGS RATIONALE
The affirmation of Gilex's ratings reflects Moody's expectation
that the company's double leverage, which is an indication
of how heavily it relies on debt to finance its investments, will
remain manageable following the recently announced reopening of its senior
secure notes. The notes are expected to be issued in an amount
not to exceed $75 million.
If all the proceeds of the current issuance and all of the company's
$300 million in cash on hand, except its $25 million
minimum liquidity requirement, were used to finance new investments,
double leverage, which is measured by investments in subsidiaries
divided by shareholders' equity, could potentially rise to as high
as 151%. Moody's considers double leverage in excess of
115% to be high and previously indicated the rating would face
downward pressure if it substantially rose above 140%. However,
Moody's expects the company will raise additional equity if necessary
in an amount sufficient to ensure that double leverage will not significantly
exceed 140%.
As a holding company, Gilex depends on its primary operating subsidiary
Banco GNB Sudameris S.A. (GNB, deposits Ba2 stable,
BCA ba3) dividends to service its debt and repay principal. As
such, Gilex's senior secured debt is structurally subordinated
to the obligations of GNB. Moreover, the rating already incorporates
an expectation that once an acquisition target is identified, double
leverage will rise to levels in excess of 115%. This leads
to a rating two notches below GNB's baseline credit assessment (BCA)
of ba3, one notch wider than Moody's typical notching for
financial holding companies.
The affirmation also incorporates an expectation that Gilex's interest
coverage will continue to exceed 1.5x. In order for this
to occur, Moody's estimates that dividend receipts from GNB,
would need to increase to 54% of GNB's expected 2018 net
earnings (annualizing June 2018 earnings) from 43% currently,
assuming no dividends from any acquisition and an issuance of $75
million. While this should be manageable for GNB, it would
reduce the level of earnings remaining available to GNB to reinvest in
the business, which could put downward pressure on its own capital
ratio, particularly if loan growth accelerates.
Moody's notes that GNB's earnings generation is subject to
volatility given its relatively narrow earnings diversification.
In addition, the bank is concentrated in just a few lending segments
and exhibits heavy reliance on wholesale funding, with market funds
equal to 27% of tangible banking assets, as of June 2018.
WHAT COULD CHANGE THE RATING UPGRADE OR DOWNGRADE
Gilex's ratings could face downward pressure if its double leverage ratio
significantly exceeds 140%, if GNB's dividends fall below
1.5-times interest expenses, and/or if Gilex faces
unexpected operating expenses, which have historically been minimal.
The ratings will also face downward pressure if GNB's BCA is lowered,
which could be driven by (i) increasing reliance on wholesale funding
and/or declining liquidity position; (ii) engagement in further large
scale acquisitions, leading to a significant reduction in capitalization,
and/or (iii) rising asset risks.
Gilex's ratings will face upward rating pressures if GNB's BCA is raised,
supported by a substantial improvement in capitalization, a significant
and sustainable increase in core earnings, and/or an improvement
in the bank's funding structure. Upward pressures could also derive
from a reduction in the company's indebtedness and/or if double leverage
looks likely to remain below 115%, or revenues from dividend
inflows significantly exceed expectations, provided this does not
impair GNB's ability to reinvest in itself and support growth.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Diego Kashiwakura
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
