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Rating Action:

Moody's affirms UniCredit Leasing SpA's Baa3/P-3 issuer ratings; outlook negative

Global Credit Research - 22 Jan 2014

Standalone BCA lowered to b2 from ba2

London, 22 January 2014 -- Moody's has today affirmed UniCredit Leasing's (UCL) long and short-term issuer ratings of Baa3/Prime-3, and lowered the company's standalone baseline credit assessment (BCA) to b2 from ba2.

Moody's says that the three-notch lowering of UCL's standalone BCA is driven by the rating agency's expectations that profitability will decline following the planned reorganisation of UCL in the first half of 2014, which will involve (i) the internal sale of UCL's international subsidiaries to other group entities and (ii) the merger of UCL with Fineco Leasing (unrated), another leasing company owned by UniCredit SpA (UniCredit, rated Baa2, D+/baa3). Moreover, Moody's noted that this reorganisation comes in a context of ongoing deterioration of UCL's profitability and asset quality.

The affirmation of UCL's issuer ratings reflects Moody's unchanged expectations regarding very high levels of support from the company's parent UniCredit. This now results in a five-notch uplift from the bank's standalone BCA, up from two previously.

The outlook on the long-term issuer rating is negative, reflecting the uncertainties regarding UCL's capitalisation following the merger with Fineco Leasing, and in line with the outlook on UniCredit's ratings.

RATINGS RATIONALE

--LOWERING OF BCA--

Moody's said that the lowering of the standalone BCA reflects the rating agency's expectations that UCL's profitability will decline following the planned sale of UCL's international subsidiaries and the merger with Fineco Leasing. Moreover, Moody's notes that this reorganisation comes in a context of already significant and ongoing deterioration of UCL's asset quality and profitability.

Moody's notes that the planned sale of all of UCL's international subsidiaries to other members of the UniCredit group in the first half of 2014 will reduce UCL's profitability. Since international subsidiaries were acquired by UCL, they have provided a substantial benefit to UCL's profitability, ranging from EUR13 million in 2011 (52% of UCL's pre-tax profit) to EUR117 million in 2012; this income helped to reduce UCL's pre-tax loss to EUR118 million in 2012. Moreover, Moody's does not expect UCL's merger with Fineco Leasing will boost profitability, as Fineco also faces significant profitability and asset quality challenges that caused it to post a pre-tax loss of EUR25 million in 2012 (see note 1 at the end of this report).

The rating agency said that given its expectation of only limited reduction in cost of funding and subdued levels of new activity, UCL's pre-provision profitability is unlikely to improve significantly for some time.

In addition, Moody's notes ongoing pressures on UCL's net profitability from deteriorating asset quality. A 78% year-on-year increase in loan loss charges to EUR267 million in 2012 (2011: EUR150 million) led to a pre-tax loss of EUR235 million, which has been adjusted to exclude income from international subsidiaries.

Moody's highlights that UCL's problem loans increased significantly to 13.8% of gross loans in 2012, from 10.6% in 2011 and 9.5% in 2010 (see note 2 at the end of this report). This level of problem loans is in line with the Italian system average for corporate loans and reflects the weakened operating environment in Italy. Moody's said that it expects UCL's asset quality to deteriorate further, in line with its expectation of an only mild recovery in Italian GDP in 2014. Moody's does not expect its merger with Fineco Leasing will lead to further deterioration, as its asset quality is comparable with UCL's.

--AFFIRMATION OF LONG AND SHORT-TERM RATINGS--

The affirmation of UCL's issuer ratings at Baa3/P-3 reflects Moody's assessment of very high expectation of support from UniCredit in case of need. This assessment, which remains unchanged from the last rating action, derives from UniCredit's strong track record of capital and funding support, and by the very strong integration of UCL in the UniCredit group. UCL is effectively managed as a division, and it provides an important product for the group.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook reflects the negative outlook on UniCredit's ratings, as well as the uncertainties regarding UCL's capitalisation going forward. In particular, Moody's notes that UCL's capital level would, without capital support, fall significantly following its merger with Fineco Leasing (which reported a Tier 1 ratio of just 3.8% as at December 2012). However, the rating agency notes that UniCredit has in the past provided UCL with an adequate level of capital, and expects this to remain the case going forward. UCL's capitalisation following the merger with Fineco Leasing will be a key driver of the company's standalone BCA.

WHAT COULD MOVE THE RATINGS UP/DOWN

As indicated by the negative outlook, an upgrade is unlikely at present. The standalone BCA would receive upward pressure from evidence of a stabilisation of problem loans, and from a return to a sustainable profitability. The issuer ratings could be upgraded following an upgrade of UniCredit.

The standalone BCA could be lowered following a sustained deterioration in UCL's asset quality, profitability or capital. A lower BCA, or a downgrade of UniCredit, could lead to a downgrade of UCL's issuer ratings.

(note 1) Unless noted otherwise, data in this report are sourced from company's reports or Moody's Financial Metrics.

(note 2) Problem loans include: non-performing loans (sofferenze), watchlist (incagli), restructured (ristrutturati) and past due loans (scaduti). Moody's adjusts these numbers and only incorporates 30% of watchlist category as an estimate of those over 90 days overdue.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Finance Company Global Rating Methodology published in March 2012. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Edoardo Calandro
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms UniCredit Leasing SpA's Baa3/P-3 issuer ratings; outlook negative
No Related Data.

 

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