BCA affirmed at baa3
Paris, December 17, 2019 -- Moody's Investors Service (Moody's) today affirmed the Baa1 long-term
deposit, issuer and senior unsecured ratings of LeasePlan Corporation
N.V. (LeasePlan). The outlook is stable. Moody's
also affirmed LeasePlan's baseline credit assessment (BCA) of baa3
and its Adjusted BCA of baa3.
Moody's also affirmed all other ratings and assessments, including
Lincoln Financing S.a.r.l.'s senior
secured notes rating.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
BCA
LeasePlan's lease portfolio's credit quality is robust,
reflecting the bank's focus on large international corporate clients
that are well diversified across sectors and countries, as well
as the low level of losses on its operating lease contracts. Nonetheless
LeasePlan bears significant "residual value risk" on its operating
lease portfolio, which is inherent to its business and partly offsets
the portfolio's strong credit quality in Moody's assessment
of the bank's asset risk. Moody's also believes that
LeasePlan has set "residual values" in a higher and therefore
less conservative manner between the end of 2015 and mid-2018,
the negative effect of which will likely materialize in asset impairments
or lower end-of-contract results (e.g. profits
stemming from the disposal of cars coming off leasing contracts in the
secondary markets) over the coming two to three years.
LeasePlan's revenue generating capacity is high, reflecting
its strong franchise and leading position in the European car leasing
market. In addition to comfortable interest margins, the
bank draws substantial revenues from related services. Despite
good business momentum, Moody's expects the decrease in end-of-contract
results and higher operating expenses due to investments in CarNext.com
and IT system to weigh on the bank's bottom-line profit over
the coming two years. The upgrade of the IT system needs to be
started anew since LeasePlan decided to discontinue its Core Leasing System
(CLS) in June 2019 after a development phase of more than two years,
and to write down this investment in its books accordingly.
The bank's reliance on confidence-sensitive wholesale funding
is high. The risks of a temporary lack of access to funding,
however, are mitigated by the matched funded structure of its balance-sheet,
its diversified funding sources which included 34% of retail deposits
at end-June 2019, and a comfortable liquidity buffer.
Moody's still considers that the governance of LeasePlan in place
since the leveraged buy-out of the company by a consortium of pension
funds, sovereign wealth funds and private equity funds in 2016 creates
a tension between the respective interests of LeasePlan's creditors
and its shareholders. The main risk is that of a corporate strategy
which favours short-term profits at the expense of the operating
company's long-term creditworthiness and sustainability.
The lack of stability in the bank's management team since mid-2018
is also negative.
The risks of an overly aggressive financial policy are partly mitigated
by the bank's high capitalisation and its status as a regulated
credit institution. The rating agency's one-notch
negative adjustment for corporate behaviour reflects the above factors
as well as the residual risk of the need to upstream substantial profit
which could lead to changes in the company's direction and risk
profile, or constrain earnings retention and capital, reducing
financial flexibility in case of unexpected shocks.
Moody's also continues to apply a negative one-notch adjustment
given Leaseplan's focus on a narrow product suite, as for
similar monoline issuers.
LEASEPLAN'S RATINGS
The Baa1 long-term deposit and senior unsecured debt ratings reflect:
(1) the bank's BCA of baa3; and (2) two notches of uplift under Moody's
Advanced Loss Given Failure (LGF) analysis, reflecting the very
low loss rate that senior debtholders and depositors are likely to incur
in a resolution scenario, given the large volume of senior unsecured
debt issued by the bank.
The analysis shows a high loss-given-failure for LeasePlan's
AT1 securities, corresponding to one notch below the bank's Adjusted
BCA of baa3. The rating agency incorporates two additional downward
notches in order to reflect coupon suspension risk ahead of failure,
leading to an assigned rating of Ba3(hyb), three notches below the
Adjusted BCA.
Moody's expects only a low probability of government support for
LeasePlan's debts, given its relatively small size, resulting
in no additional uplift.
The stable outlook on LeasePlan's long-term debt and deposit ratings
reflects Moody's expectation that there will be no significant changes
in the bank's fundamentals nor in its liability structure that could affect
the ratings over the outlook horizon.
LINCOLN FINANCING S.A.R.L. (LINCOLN)
The B1 rating of Lincoln's senior secured notes is driven by: (1)
the baa3 BCA of LeasePlan; (2) the deeply subordinated position of
the instrument and high expected loss-given-failure;
and (3) the fact that LeasePlan, as a regulated bank, could
be constrained in its ability to pay dividends, which could impair
Lincoln's ability service its debt. The B1 rating is therefore
four notches below LeasePlan's baa3 BCA, reflecting the structural
subordination of the senior secured notes and the significant double leverage
incurred at Lincoln, which results in additional default risk.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upgrade of LeasePlan's BCA is unlikely in the foreseeable future,
considering that the owners are private equity investors who are expected
to constrain any further material improvement in the bank's solvency,
and that profitability, in the near-term, is under
pressure. An upgrade could nonetheless be triggered by a substantial
improvement in capital or in its funding profile.
LeasePlan's BCA and long-term ratings may be downgraded if the
shareholders were to implement a more aggressive financial policy at the
bank. In addition, the BCA could be downgraded as a result
of: (1) the failure of risk-mitigation techniques,
recurring earnings or capital resources to adequately cover higher-residual-value
risk; (2) an evidence of deterioration in the bank's liquidity and
funding profiles, resulting from increased reliance on wholesale
funding or worse-than-expected liquidity gaps; or (3)
a structural deterioration in profitability or the diversity of income
streams. A downgrade of LeasePlan's BCA would result in a downgrade
of the bank's long-term ratings.
The ratings could also be downgraded if there were a significant and sustained
decline in the debt loss-absorption capacity, resulting in
higher loss-given-failure for one or more instrument classes.
LIST OF AFFECTED RATINGS
Issuer: LeasePlan Corporation N.V.
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed A3
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Long-term Bank Deposits,
affirmed Baa1, outlook remains Stable
....Short-term Bank Deposits,
affirmed P-2
....Short-term Deposit Note /CD Program,
affirmed P-2
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Issuer Rating,
affirmed Baa1, outlook remains Stable
....Baseline Credit Assessment, affirmed
baa3
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa1, outlook remains Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Baa1
....Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
....Backed Commercial Paper, affirmed
P-2
....Other Short Term, affirmed (P)P-2
..Outlook Action:
....Outlook remains Stable
Issuer: LeasePlan Australia Limited
..Affirmations:
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Baa1
....Backed Commercial Paper, affirmed
P-2
....Backed Other Short Term, affirmed
(P)P-2
..Outlook Action:
....Outlook changed to No Outlook from Stable
Issuer: LeasePlan Finance N.V. (DUBLIN BRANCH)
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed A3
....Short-term Counterparty Risk Ratings,
affirmed P-2
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Backed Commercial Paper, affirmed
P-2
..Outlook Action:
....Outlook changed to No Outlook from Stable
Issuer: Lincoln Financing S.a.r.l.
..Affirmations:
....Backed Senior Secured Regular Bond/Debenture,
affirmed B1, outlook remains Stable
..Outlook Action:
....Outlook remains Stable
PRIMARY METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019. 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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Yasuko Nakamura
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
