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PLEASE READ AND SCROLL DOWN!

 

By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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2.            You acknowledge and agree that Moody’s credit ratings: (i) are current opinions of the future relative creditworthiness of securities and address no other risk; and (ii) are not statements of current or historical fact or recommendations to purchase, hold or sell particular securities.  Moody’s credit ratings and publications are not intended for retail investors, and it would be reckless and inappropriate for retail investors to use Moody’s credit ratings and publications when making an investment decision.  No warranty, express or implied, as the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any Moody’s credit rating is given or made by Moody’s in any form whatsoever.          

 

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Related Issuers
Announcement:

Moody's downgrades Locindus's standalone credit assessment to ba3 from ba1; outlook negative; A2/P-1 deposit ratings and stable outlook unaffected

05 Sep 2012

London, 05 September 2012 -- Moody's Investors Service has today downgraded the standalone credit assessment of Locindus to ba3 from ba1 and assigned a negative outlook. Locindus's deposit ratings of A2/Prime-1 and its stable outlook are unaffected by today's announcement.

Locindus's standalone credit assessment was lowered because of (1) the risks stemming from the entity's limited franchise and inherent concentration risks arising from its exposure to the commercial real-estate (CRE) sector; (2) the pressure on the institution's profitability and asset quality resulting from the weakening macroeconomic environment; and (3) its reliance on its parent Crédit Foncier de France (CFF; A2 deposits, stable; D-/ba3 standalone bank financial strength rating/standalone credit assessment, negative) for risk management and refinancing.

Moody's employed its Finance Company Global Rating Methodology, published in March 2012, as the primary methodology to assign the ba3 standalone credit assessment for Locindus. The previous standalone credit profile of D+/ba1, placed under review for downgrade on 15 February 2012, was determined under the Consolidated Global Bank Rating Methodology, published in June 2012. With the change in primary methodology for our assessment of Locindus's standalone credit profile, Moody's will no longer separately disclose a BFSR for this entity.

RATINGS RATIONALE

FIRST DRIVER FOR THE STANDALONE CREDIT ASSESSMENT -- LIMITED FRANCHISE AND HIGH CREDIT CONCENTRATION

As a specialised French credit institution focusing on CRE leasing, Locindus is a monoline institution. With EUR863 million in total assets and a property finance lease and loan portfolio of EUR680 million at end-June 2012, Locindus is a very small player in the domestic CRE market. Despite its experience and good brand recognition in its niche market, Locindus's client base remains limited and is unlikely to expand going forward. Moreover, its lease portfolio is highly concentrated. As of end-June 2012, the 25 largest customers formed 58% of total credit exposures, representing 174% of Locindus's tangible common equity.

Moody's believes that the low granularity of Locindus's client portfolio, its very high asset concentrations (ca. 42% of the exposures relate to shopping outlets) and low geographical diversification (ca. 42% of the exposures originated from the Paris region at H1 2012), render Locindus vulnerable to the deteriorating operating environment and to a CRE sector downturn.

SECOND DRIVER -- PRESSURE FROM THE DETERIORATION OF THE MACROECONOMIC ENVIRONMENT

As a monoline institution, Locindus's profitability is inherently volatile and reliant on the trends in both the CRE market and the operating environment. Locindus's recent profitability indicators were sustained by exceptional items, stemming from the divestment of its rental portfolio (managed in run-off since 2007) and the transformation of long-term rental contracts into leasing contracts. Excluding those exceptional items, Moody's believes that Locindus's underlying profitability remains weak.

Although asset-quality indicators remain adequate as of today, Moody's believes that Locindus is inherently exposed to a rapid deterioration of its cost of risk, considering its high borrower concentrations. In addition, the firm remains vulnerable to a macro-economic downturn, illustrated at end-2011 when non-performing loans as a percentage of gross loans suddenly jumped to 1.5% from 0.1% at year-end 2010, due to a EUR10.2 million surge in non-performing loans stemming from one deal, which has since been transferred to CFF.

Moody's anticipates that the French economy, and more generally most European economies, will continue to register weak performance for the foreseeable future. For this reason, Moody's expects Locindus's profitability to remain under pressure in the quarters to come.

THIRD DRIVER -- HIGH INTEGRATION AND RELIANCE ON CREDIT FONCIER

Since CFF acquired the majority of Locindus in 2007 and the management agreement was put in place the same year, Locindus is now highly integrated and reliant on its direct parent CFF, notably for funding and liquidity but also for sourcing new business. Moody's believes that there are extensive operational linkages between Locindus and CFF for the following reasons:

(1) Locindus's commercial strategy is highly integrated with that of CFF, which uses Locindus's expertise for complex real-estate leasing operations. While Locindus will continue to complement CFF's commercial offerings, its loan production is expected to remain at a modest level. Locindus's rental activity has been in run-off mode since 2007, whereas CFF has embarked on a selective deleveraging process focusing mainly on its international business;

(2) As part of the management agreement between CFF and Locindus, risk-management, human resources and IT functions are delegated to CFF, thereby further increasing the level of integration between the two institutions. In addition, Locindus is fully reliant on CFF for refinancing and ALM financial risk management.

Although Moody's recognises the tangible benefits to Locindus's liquidity profile of the access to CFF funding, Moody's believes that the credit weaknesses of its parent, notably its wholesale funding profile, should be appropriately captured in Locindus's standalone credit assessment. CFF's standalone credit assessment is D-/ba3 with negative outlook.

RATIONALE FOR NEGATIVE OUTLOOK OF THE STANDALONE CREDIT ASSESSMENT

The outlook on Locindus's standalone credit assessment is negative and reflects Moody's view that the firm's financial strength may come under further pressure in the event of a more pronounced macro-economic downturn. It also reflects the firm's high correlation with and liquidity reliance on CFF, deriving from the strong operational linkages between the two institutions.

DEPOSIT RATINGS UNAFFECTED

Locindus's A2 long-term deposit rating with stable outlook, which is seven notches higher than its standalone credit assessment of ba3, is unaffected by today's announcement. The high support uplift results from the firm's affiliation to BPCE (A2 stable/Prime-1; D/ba2 stable) and its inclusion within the group solidarity mechanism.

WHAT COULD MOVE THE RATING UP/DOWN

Upward pressure on Locindus's standalone credit assessment is unlikely as it carries a negative outlook. Any upward pressure on its standalone credit strength is unlikely to trigger an upgrade of the long-term deposit ratings, given the very high uplift incorporated into Locindus's deposit rating.

Locindus's standalone credit assessment could be downgraded if Moody's considers that a macroeconomic slowdown could materially affect the firm's profitability or asset quality and as such, challenge the overall viability of the firm's franchise and business model.

Locindus's A2 long-term deposit rating would likely be downgraded if Moody's believes that Groupe BPCE's creditworthiness has deteriorated (BPCE ultimately provides support to Locindus, if needed, through CFF). Downwards pressure could also develop if (1) Moody's believes there has been significant deterioration in the probability of mutualist support from the group, due to a change in Locindus's affiliation status, and/or a weakening solidarity mechanism; and (2) Moody's believes there is a lower probability of systemic support being provided to Groupe BPCE, and in turn to Locindus.

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Finance Company Global Rating Methodology, published on 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 relevant 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 relevant 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 relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Andrea Usai
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
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
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
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Locindus's standalone credit assessment to ba3 from ba1; outlook negative; A2/P-1 deposit ratings and stable outlook unaffected
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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