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Rating Action:

Moody's assigns first-time B1 corporate family rating and B2 issuer rating to Lionbridge Capital

 The document has been translated in other languages

07 Jul 2017

Hong Kong, July 07, 2017 -- Moody's Investors Service has assigned a B1 corporate family rating (CFR) and a B2 issuer rating to Lionbridge Capital Co., Limited (Lionbridge Capital).

The ratings outlook is stable.

This is the first time that Moody's has assigned ratings to Lionbridge Capital.

Moody's CFR reflects the likelihood of a default on a corporate family's contractually promised payments and the expected financial loss suffered in the event of default. A CFR is assigned to a corporate family as if it had a single class of debt and a single consolidated legal entity structure. Moody's issuer rating reflects the ability of entities to honor senior unsecured financial counterparty obligations and contracts.

RATINGS RATIONALE

Lionbridge Capital's B1 CFR reflects the company's: (1) rapid asset growth and short track record; (2) heavy reliance on wholesale secured funding; and (3) relatively small amount of liquid assets. Partly offsetting these credit challenges are the company's franchise in the niche truck leasing market, the good quality of the underlying leasing assets, solid retail client base, and prudent asset/liability duration management.

Lionbridge Capital was established in Hong Kong in 2011 and set up its core operating entity, Lionbridge Financing Leasing (China) Co., Ltd., (Lionbridge Leasing) in mainland China in April 2012. At end-2016, Lionbridge Leasing accounted for 97% of Lionbridge Capital's total assets.

Lionbridge Capital provides financial leasing services for trucks, passenger vehicles, as well as for medical, agricultural, solar energy and industrial equipment. At end-2016, Lionbridge had established branches in 696 counties across China with over 1,400 employees. Leveraging its extensive network and focused strategy, the company has become a leading player in China's niche truck leasing market.

The company's assets have grown at a rapid compound annual growth rate (CAGR) of 59.6% during 2013-2016. This fast growth rate challenges the company's risk management and process controls.

Lionbridge Capital relies on confidence-sensitive wholesale funding—including trust products, asset management schemes and bank borrowing—to support its leasing assets. Most of these borrowings are secured with leasing receivables. The company has been increasing its long-term funding through the issuance of asset backed securities and corporate bonds, and the duration mismatch of its assets and liabilities is materially lower than for other rated leasing companies.

The company's asset quality has been stable due to its prudent risk controls and the good granularity of its leasing assets. At end-2016, it reported a 90 day+ overdue asset ratio of 2.27%. In addition, the company has the capability to collect and dispose defaulted leasing assets, which could help reduce potential losses.

The company's reported return on average assets amounted to 0.92% in 2016. Its profitability is negatively impacted by its relatively high operating expenses.

Lionbridge Capital is controlled by Bain Capital Lionbridge Holding Cayman Limited. The company's B1 CFR does not incorporate any uplift for parental support.

The one notch difference between Lionbridge Capital's CFR and issuer rating reflects that most assets reside at its fully owned onshore operating entity, Lionbridge Leasing, and that a large proportion of Lionbridge Leasing's assets are encumbered for secured borrowings. Lionbridge Capital's senior unsecured debts are structurally subordinated to Lionbridge Leasing's secured indebtedness and senior unsecured indebtedness.

WHAT COULD CHANGE THE CFR -- UP

Lionbridge Capital's CFR could be upgraded if the company: (1) materially increases its liquid assets; (2) moderates its rapid growth rate; and (3) maintains its asset quality as it portfolio seasons.

WHAT COULD CHANGE THE CFR -- DOWN

Lionbridge Capital's CFR could be downgraded if its: (1) franchise in truck leasing weakens; (2) asset quality deteriorates; and (3) profitability declines.

WHAT COULD CHANGE THE ISSUER RATING -- UP

Lionbridge Capital's issuer rating could be upgraded if its CFR is upgraded.

WHAT COULD CHANGE THE ISSUER RATING -- DOWN

Lionbridge Capital's issuer rating could be downgraded if: (1) its CFR is downgraded; or (2) structurally senior and/or secured debt materially increases.

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

Lionbridge Capital Co., Limited reported consolidated total assets of RMB9,533 million (approximately USD1,374 million) at end-2016.

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.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

David Yin
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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