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Rating Action:

Moody's assigns first-time B2 ratings to Gilex; stable outlook

14 Mar 2018

New York, March 14, 2018 -- Moody's Investors Service has assigned the first time long-term issuer rating to Gilex Holding S.à r.l. (Gilex) of B2. Moody's also assigned a long-term foreign currency unsecured debt rating of B2 to Gilex's proposed USD 300 million senior notes issuance. The ratings assigned to Gilex carry a stable outlook.

The notes will be senior unsecured obligations, and will rank pari passu in right of payment with all of Gilex's existing and future senior unsecured and unsubordinated external debts.

The following ratings were assigned to Gilex:

...Long-term Issuer rating of B2, stable outlook

...Long-term foreign currency unsecured debt rating of B2, stable outlook

Assigned Outlook: Stable

RATINGS RATIONALE

Gilex is a holding company based in Luxembourg. The large majority of its asset holdings is represented by its 94.7% stake in Banco GNB Sudameris S.A. (GNB), a bank based in Colombia.

The ratings assigned to Gilex are two notches below GNB's baseline credit assessment (BCA) of ba3, which does not incorporate any support from the Colombian government, to reflect structural subordination to GNB, moderate double leverage, and relatively modest interest coverage. Dividends from GNB will supply nearly all of the cash flow to repay principal and interest on Gilex's debt.

Gilex's ratings incorporate an expectation that double leverage, an indication of how heavily it relies on debt measured by its investments in subsidiaries divided by shareholders' equity, will remain manageable, in the range of 115% to 130%, assuming that the company deploys between one- and two-thirds of all the resources raised from the debt issuance in acquisitions or additional investments in currently held subsidiaries, from less than 100% currently.

The ratings also incorporate the risks associated with the dividend inflows from GNB. Assuming that GNB pays dividends equal to 50% of net income, Gilex's interest coverage is expected to be relatively narrow initially, at 1.7 times. While GNB's profitability has improved in recent years, with an average yearly growth of net income of 13% from 2014 to 2017, its earnings generation is subject to volatility given its relatively narrow earnings diversification, concentrated in a few lending segments, and its sensitivity to changes in cost of funds arising from its heavy reliance on wholesale funding.

Also, GNB has reinvested all of its earnings in its business in recent years. As it begins to pay dividends, lower earnings retention coupled with faster asset growth could quickly consume any capital injected in the bank by Gilex with the proceeds of the current issuance and ultimately pressure the bank's capitalization. In turn, this could force the bank to reduce dividend payouts, which would put further pressure on Gilex's interest coverage ratio.

The ratings also consider key covenants. These include a conservative incurrence test that is expected to prevent the company from issuing any additional debt for the foreseeable future, as well as a covenant to maintain at least USD 25 million of liquid assets. If Gilex sells its ownership stake in GNB, however, it may invest the proceeds in the purchase of other assets rather than prepay the debt.

The stable outlook takes into consideration our expectation that Gilex will not incur in additional debt given the conservative incurrence test. Also, it incorporates our expectation that GNB's asset risks will remain stable, in line with Colombia's gradual economic recovery, while earnings generation will continue to sustain capitalization.

WHAT COULD CHANGE THE RATING UP/DOWN

Gilex's ratings could be downgraded if GNB's BCA is lowered, which in turn, would be associated with the bank's: (i) increasing reliance on wholesale funding and/or declining liquidity position; (ii) engagement in further large scale acquisitions, leading a significant reduction in capitalization, and/or rising asset risks. Gilex's ratings could also face downward pressure if its double leverage ratio exceeds our expectations, if its cash inflows are lower than anticipated as a result of subsidiaries' worse than expected earnings generation, and/or if it faces unexpected operating cash outflows.

Gilex's ratings could face upward rating pressures if GNB's BCA is raised, supported by a significant and sustainable increase in core earnings and capitalization, and/or an improvement in the bank's funding structure. Also, upward pressures could derive from a reduction in the company's indebtedness and/or double leverage, or higher than expected revenues from dividend inflows.

The principal methodology used in these ratings was Banks published in September 2017. 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 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.

Alcir Freitas
VP - Senior Credit Officer
Financial Institutions Group
Moody's America Latina Ltda.
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16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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