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Rating Action:

Moody's assigns B3 and Caa2 corporate family and issuer ratings to Optima Faktoring; outlook stable

25 Sep 2017

First-time ratings

London, 25 September 2017 -- Moody's Investors Service has today assigned a corporate family rating (CFR) of B3 and an issuer rating of Caa2 to Optima Faktoring A.S. (Optima). The outlook on these ratings is stable. Furthermore, Moody's assigned a B3.tr National Scale Issuer Rating.

RATINGS RATIONALE

RATIONALE FOR THE CFR

Moody's says that the B3 CFR reflects Optima's solid profitability, adequate capital buffers and sufficient liquidity, counterbalanced by its weak franchise, relatively high risk profile, high problem loans, and the potential risks stemming from the Turkish operating environment.

Optima is a mid-sized domestic factoring company, based in Turkey, with assets of USD46 million at December 2016.

With a return on average assets of 2.6% in 2016, Optima exhibits a solid level of profitability, although this is potentially volatile in line with the volatility of assets, which can be built up or run off quickly, given their short-term nature. Profitability is driven by relatively high margins, and relatively low operating expenses and cost of credit.

Moody's views Optima's capital ratios to be adequate, based on tangible common equity (TCE) of 19% of assets at December 2016. Although this is however lower than Turkish peers, Moody's does not expect a significant reduction of TCE owing to aggressive asset growth, given the company's policy of focusing on higher margins rather than volumes.

Optima's liquidity is sufficient, according to Moody's. The average maturity of assets is around 3 months, while average maturity of funding is around 5 months, resulting in a 2-month positive gap. Furthermore, Moody's estimates that the company is self-liquidating in about 6 months. Optima's debt is secured by the dated cheques received by the factoring clients.

Against these positive credit drivers, Moody's views the company's risk profile as relatively high, constrained by volatile assets, and still developing corporate governance, risk and liquidity management frameworks, as well as by reliance on a small number of key managers, a characteristic inherent to Optima's family ownership. These factors are partly mitigated by the high diversification of assets across sectors and borrowers. As a small private company, Optima's level of information disclosure and frequency of financial reporting remains limited.

Problem loans were 4.7% of loans and 21% of equity and loan loss reserves at December 2016, which is weaker than the average of both factoring companies in Turkey (about 4%) and the Turkish banking sector (3.1%), despite some sales of problem loans.

Moody's acknowledges that the factoring industry's asset quality and profitability are currently improving thanks to the liquidity injected by Turkey's Credit Guarantee Fund into the small and medium-sized enterprises that are clients of factoring companies. Nevertheless, Moody's notes that despite this and the current growth in the Turkish economy, there are potential downside risks in the Turkish operating environment. These include a combination of political, security and geopolitical tensions, volatile currency, high inflation, fragile investor confidence and rising global interest rates.

RATIONALE FOR THE ISSUER RATING

Moody's has positioned the issuer rating at Caa2, two notches below the CFR, to reflect the structural subordination of senior unsecured debt to secured debt, which stands at around two-thirds of the total amount.

Optima's TL128 million debt at end-2016 is secured by the dated cheques received by the factoring clients. Optima has recently received regulatory approval to issue up to TL90 million senior unsecured debt and has already issued TL24 million of senior unsecured bonds. According to Moody's, the senior unsecured debt is structurally subordinated to the majority of Optima's debt, which is secured, hence the issuer rating two notches below the CFR.

RATIONALE FOR THE OUTLOOK

The stable outlook reflects Moody's expectations that the company's financials will remain consistent with the assigned ratings for the next 12-18 months.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could upgrade Optima's rating if (1) problem loans decline significantly and (2) risk management becomes more structured and formalised. Moody's could also upgrade the issuer rating if secured debt declines to significantly less than two thirds of debt.

Conversely, Moody's could downgrade Optima's rating if (1) the company is unable to sustain current profitability; (2) TCE declines below 13% of assets or (3) the liquidity profile deteriorates.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Finance Companies published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

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.

Carlo Gori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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