LeasePlan Corporation's long-term ratings downgraded to Baa1 from A3; outlook stable
Paris, February 04, 2016 -- Moody's Investors Service has today assigned a long-term
debt rating of B1 to the Senior Secured Notes to be issued by Lincoln
Finance Limited (Lincoln) in connection with the acquisition of LeasePlan.
The outlook assigned to the rating is stable.
Concurrently, Moody's has downgraded LeasePlan Corporation
N.V.'s (LeasePlan) and its supported entities' long-term
senior unsecured debt and deposit ratings to Baa1 from A3. The
outlooks on these ratings are stable. Moody's has also downgraded
LeasePlan's Baseline Credit Assessment (BCA) to baa3 from baa2.
The bank's short-term senior unsecured debt and deposit ratings
were affirmed at Prime-2. In addition, Moody's has
downgraded LeasePlan's long-term and short-term Counterparty
Risk Assessments to A3(cr)/Prime-2(cr) from A2(cr)/Prime-1(cr).
These actions conclude the review for downgrade initiated on LeasePlan's
ratings on 28 July 2015, following the bank's announcement
on the 23rd of July of a change of ownership. On 1 February 2016,
LeasePlan announced that the European Central Bank (ECB) approved the
transaction under which its 100% shareholder Global Mobility Holding
B.V. (GMH; unrated) sold its shares to a consortium
of investors. GMH is a joint venture between Volkswagen Aktiengesellschaft
(VW; A3 negative) and Fleet Investment BV (unrated). The consortium
of buyers is composed of pension funds, sovereign wealth funds and
private equity funds.
Please see the end of this press release for a full list of the affected
ratings.
RATINGS RATIONALE
-- LINCOLN FINANCE LIMITED
Moody's has assigned a B1 rating to the EUR1.55 billion Senior
Secured Notes issued by Lincoln. This debt will be used to finance
part the 100% acquisition of LeasePlan's shares, the
remainder being financed through equity. The total proceeds of
the transaction will be approximately EUR3.9 billion, which
essentially comprise the acquisition purchase price of EUR3.5 billion,
an interest reserve account of 2.5 years of interest on the Senior
Secured Notes and transaction expenses of EUR100 million. 61%
of the transaction financing will be funded through equity, which
includes the proceeds of a EUR480 million mandatory convertible instrument
issued by an affiliate.
The B1 rating of the Senior Secured Notes is a function of (1) the baa3
BCA of LeasePlan, which is Lincoln's principal investment;
(2) the deeply subordinated position of the instrument and high expected
loss-given-failure; and (3) the fact that LeasePlan
is a regulated bank and may at times be constrained in its ability to
pay dividends, a credit negative for Lincoln's creditors,
which will be reliant on such dividend payments for the servicing of their
debt. The B1 rating is positioned four notches below LeasePlan's
baa3 BCA. This outcome compares to a non-viability security
rating for LeasePlan, which would typically be positioned three
notches below the bank's BCA, at Ba3. The additional
notch is a reflection of the structural subordination of the Senior Secured
Notes and the significant double leverage incurred at Lincoln's
level which result in additional default risk.
-- LEASEPLAN
The downgrade of LeasePlan's BCA to baa3 reflects the leveraged
nature of the proposed acquisition, which suggests a more aggressive
financial policy given the need to service the EUR1.55 billion
cash-pay acquisition debt and optimise the return on invested equity.
Moody's believes that earnings retention and capital accretion may be
constrained going forward, as the new owners will have little incentive
to leave significant buffers above the minimum regulatory capital ratios,
hence reducing financial flexibility in case of unexpected shocks.
In addition, although the new owners are expected to preserve the
strategic and operating independence of LeasePlan, Lincoln's
debt burden may in time lead to changes in the company's direction and
risk profile. These constraints and uncertainties have led the
rating agency to downgrade the bank's BCA to baa3 from baa2.
Nonetheless, LeasePlan's credit profile continues to benefit from
its status as a regulated credit institution which is subject to capital
and liquidity requirements. This supervision could mitigate the
risk of an overly aggressive financial policy and creates a relatively
strong "ring-fence" for LeasePlan's credit profile. As a
result, Moody's believes that LeasePlan's solvency and
liquidity will remain satisfactory against the risks undertaken in the
auto leasing business. The planned dividend payout ratio of 60%
going forward, although above historical average, should allow
LeasePlan's CET1 ratio to stay relatively elevated. The bank's
CET1 ratio was 17.2% as of end-September 2015.
In addition, LeasePlan's funding and liquidity profile will
not be significantly altered. The bank will notably replace the
EUR1.25 billion VW liquidity facility by a bank line of similar
amount and characteristics.
The downgrade of LeasePlan's long-term deposit and senior
unsecured debt ratings to Baa1 reflects (1) the downgrade of the bank's
BCA to baa3; and (2) two notches of uplift under Moody's Advanced
Loss Given Failure (LGF) analysis, reflecting the very low loss
rate that senior debt holders and depositors are likely to experience
in resolution given the material volume of senior unsecured debt issued
by the bank. Moody's expects only a low probability of government
support for LeasePlan's senior debt holders and depositors,
resulting in no uplift for the senior debt and deposit ratings.
OUTLOOKS
LeasePlan's long-term debt and deposit ratings and the rating
of the Senior Secured Notes all carry stable outlooks.
WHAT COULD CHANGE THE RATING UP/DOWN
The rating of the Senior Secured Notes may be downgraded if the interest
coverage of the notes by dividends and cash reserves (through the interest
reserve account) diminishes due to (1) a deterioration of LeasePlan's
net results and/or (2) a diminution of LeasePlan's capacity to upstream
dividends due to tighter regulatory constraints. Moody's
does not envisage an upgrade of the notes in the foreseeable future,
viewing the capacity of the shareholders to upstream cash out of the restricted
group and to incur additional indebtedness at Lincoln's level under
certain covenants.
LeasePlan's BCA and long-term ratings may be downgraded if
the shareholders implement a materially more aggressive financial policy
at the bank. In addition, the BCA could be downgraded as
a result of (1) the failure of risk mitigation techniques, recurring
earnings or capital resources to adequately address higher residual value
risk; (2) evidence of deterioration of the bank's liquidity and funding
profile, resulting from an increased reliance on wholesale funding
or worse-than-expected liquidity gaps; (3) a structural
deterioration in profitability or the diversity of income streams.
A downgrade of LeasePlan's BCA would typically result in a downgrade
of the bank's long-term ratings. These ratings could
also be downgraded if there was a significant and sustainable decrease
in debt loss-absorption capacity resulting in higher loss-given-failure
for one or more instrument class.
An upgrade of LeasePlan's BCA is unlikely at present, viewing
that the new acquirers are financial sponsors which are expected to limit
equity retention at the bank.
LIST OF AFFECTED RATINGS, BASELINE CREDIT ASSESSMENTS AND COUNTERPARTY
RISK ASSESSMENTS
The following rating has been assigned:
- Lincoln Finance Limited's senior secured debt rating of
B1, stable outlook.
The following ratings, Baseline Credit Assessments (BCAs) and Counterparty
Risk Assessments have been downgraded:
- LeasePlan Corporation N.V.'s BCA and adjusted BCA
to baa3 from baa2
- LeasePlan Corporation N.V.'s long-term debt,
issuer and deposit ratings to Baa1 stable from A3 Ratings under Review
- LeasePlan Corporation N.V.'s senior unsecured
MTN ratings to (P)Baa1 from (P)A3
- LeasePlan Corporation N.V.'s long-term and
short-term counterparty risk assessments to A3(cr)/Prime-2(cr)
from A2(cr)/Prime-1(cr)
- LeasePlan Australia Limited's backed senior unsecured rating
to Baa1 stable from A3 Ratings under Review
- LeasePlan Australia Limited's backed senior unsecured MTN rating
to (P)Baa1 from (P)A3
- LeasePlan Finance N.V. (Dublin Branch)'s backed
senior unsecured rating to Baa1 stable from A3 Ratings under Review
- LeasePlan Finance N.V. (Dublin Branch)'s backed
senior unsecured MTN rating to (P)Baa1 from (P)A3
- LeasePlan Finance N.V. (Dublin Branch)'s long-term
and short-term counterparty risk assessments to A3(cr)/Prime-2(cr)
from A2(cr)/Prime-1(cr)
The following ratings have been affirmed:
- LeasePlan Corporation N.V.'s short-term
debt and deposit ratings of Prime-2
- LeasePlan Corporation N.V.'s other short
term ratings of (P)Prime-2
- LeasePlan Australia Limited's backed short-term Commercial
Paper rating of Prime-2
- LeasePlan Australia Limited's backed other short term ratings
of (P)Prime-2
- LeasePlan Finance N.V. (Dublin Branch)'s backed
short-term Commercial Paper rating of Prime-2
- LeasePlan Finance N.V. (Dublin Branch)'s backed
other short term ratings of (P)Prime-2
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. 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.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
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.
Guillaume Lucien-Baugas
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's rates Lincoln Finance Limited's Senior Secured Notes at B1 with a stable outlook
