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.
Avenida Nacoes Unidas, 12.551
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
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
