Rating action follows the decision of Societe Generale to acquire LeasePlan through ADL
Paris, January 18, 2022 -- 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
on these ratings was changed to positive from stable previously.
Moody's also affirmed LeasePlan's Baseline Credit Assessment (BCA) and
Adjusted BCA of baa3.
Moody's also affirmed all other ratings and assessments, including
Lincoln Financing S.a.r.l.'s backed senior
secured notes rating.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
OUTLOOK CHANGE TO POSITIVE
On 6 January, Societe Generale (A1 deposit and senior unsecured,
stable outlook, baa2 BCA) announced that it will acquire LeasePlan
through ALD S.A. (ALD), its 80% owned global
car fleet management company for €4.9 billion, of which
€2 billion are in cash and the rest in shares. Societe Generale
and LeasePlan expect to close the transaction by the end of 2022.
Under the agreed transaction, Societe Generale will own 53%
of the combined entity (NewALD) while LeasePlan's current shareholders
will hold 30.75% of the entity at closing. The transaction
will bring together two global leaders in the car fleet management and
mobility sector representing a combined car fleet of around 3.5
million vehicles, the third largest globally.
The expected positive impact of the change in ownership at LeasePlan and
integration into the Societe Generale group have driven the change of
the outlook on LeasePlan's ratings to positive from stable.
The perspective of a change in LeasePlan's ownership from a consortium
of funds to a banking group which embarks on a long-term investment
and aims at obtaining synergies with its own activities is credit positive.
Since its leveraged buyout by a consortium of pension funds, sovereign
wealth funds and private-equity funds in 2016, Moody's
has applied a qualitative one-notch negative adjustment to LeasePlan's
rating, reflecting the risks associated with a corporate strategy
which typically favors short-term profit and substantial dividend
distribution at the expense of the company's long-term creditworthiness.
This adjustment will likely be removed once ALD has acquired LeasePlan,
which other things being equal, would lead to a one-notch
upgrade of LeasePlan's BCA, and hence of its ratings.
Based on the stated synergy ambitions, Moody's expects a high
level of integration between LeasePlan and ALD, although the practical
arrangements have not yet been disclosed. Moody's also believes
that NewALD, as a leading global mobility player, will be
of strategic importance for Societe Generale and become one of the main
pillars of its business portfolio. Moody's takes note of
the bank's commitment to remain the long-term majority shareholder
of the combined entity as well as its plan to provide 30% of the
company's funding needs. Moody's also believes the
planned change of NewALD's status into a regulated entity as a financial
holding company, while LeasePlan is expected to keep its banking
license, reinforces Societe Generale's shareholder accountability
towards its subsidiary.
AFFIRMATION OF BCA AND RATINGS
The baa3 BCA reflects LeasePlan's strong franchise and leading position
in the European car leasing market, high revenue generating capacity,
a capitalisation commensurate with its risk profile and sound funding
structure despite its material reliance on confidence-sensitive
wholesale funding. These strengths are partly offset by its significant
exposure to cars' residual-value risk. The BCA also includes
the aforementioned one-notch negative adjustment for corporate
behaviour reflecting governance risks related to the current ownership
of the company, and an additional one-notch adjustment reflecting
its narrow franchise, as is the case for similar monoline issuers.
LeasePlan's long-term deposit and senior unsecured debt ratings
of Baa1 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. Moody's expects
only a low probability of government support for LeasePlan's senior debtholders
and depositors, resulting in no uplift for the senior unsecured
debt and deposit ratings.
The LGF analysis shows a high loss-given-failure for LeasePlan's
AT1 securities, leading to a one-notch negative adjustment
from the bank's Adjusted BCA of baa3. Moody's incorporates
two additional downward notches to reflect coupon suspension risk ahead
of failure, leading to a rating of Ba3(hyb), three notches
below the Adjusted BCA.
The B1 rating of Lincoln's backed senior secured notes is positioned 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. The
outlook on Lincoln Financing S.a.r.l.'s backed
senior secured notes rating remains stable because these notes are not
part of the transaction and Moody's expects them to be redeemed
by the closing of the transaction.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
In the absence of a material deterioration in its fundamentals,
the acquisition of the company by ALD, if implemented as announced,
could trigger an upgrade of the BCA through the removal of the one-notch
negative adjustment for corporate behavior. An upgrade of the BCA
would likely trigger an upgrade of the bank's ratings. Deposit
and senior unsecured debt ratings could also be upgraded if the integration
in NewALD as a core subsidiary leads to its integration in Societe Generale's
group resolution perimeter.
A downgrade of LeasePlan is currently unlikely because of the positive
impact expected from the announced transaction. LeasePlan's BCA
and long-term ratings could nonetheless be downgraded if the current
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 and/or capital resources to adequately cover higher residual-value
risk; (2) any 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.
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 changed to Positive from 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 changed to Positive from Stable
....Baseline Credit Assessment, affirmed
baa3
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa1, outlook changed to Positive from 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 changed to Positive from 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
No Outlook assigned
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
No Outlook assigned
Issuer: Lincoln Financing S.a.r.l.
..Affirmations:
....Backed Senior Secured Regular Bond/Debenture,
affirmed B1, outlook remains Stable
..Outlook Action:
....Outlook remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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support provider and in relation to each particular credit rating action
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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
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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
Olivier Panis
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
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