ACRA affirms A-(RU) to “TransFin-M” PC, outlook Developing, and affirms А-(RU) to bond issues

The credit rating of “TransFin-M” PC (hereinafter, TransFin-M, or the Company) is based on a moderate standalone creditworthiness assessment (SCA) and the high likelihood of extraordinary support from its supporting organization, the non-state pension fund “BLAGOSOSTOYANIE” (hereinafter, BLAGOSOSTOYANIE, the Supporting Organization, or the SO). The Developing outlook reflects ACRA’s opinion regarding the potential change in credit rating (upgrade or downgrade) as a result of a possible change of the Company’s shareholder. The rating will depend on the credit quality of the new shareholder (relative to the credit rating of the current supporting organization) and the Company’s strategic importance to said shareholder.

TransFin-M is a specialized leasing company focused on financial lease in transportation means, mainly rolling stock. The Company is among the largest Russian leasing companies in terms of lease portfolio. The actual parent company of TransFin-M is non-state pension fund “BLAGOSOSTOYANIE,” owned primarily by Bank GPB (JSC) (ACRA rating – AA(RU), outlook Positive), Joint Stock Company “Russian Railways” (ACRA rating – AAA(RU), outlook Stable), and RSHB Asset Management Limited Liability Company.

Key rating assessment factors

Adequate business profile. TransFin-M is among the top leasing companies, a leader in the railcar leasing market, and a major rolling stock operator, acting through a range of its affiliates (the concentration of the Company’s lease portfolio on rolling stock remains high at 83%). ACRA also notes the poor diversification of the lease portfolio by customer (the share of the top ten lessees is 84%), the majority of which (about 70% of the lease portfolio) are captive companies. At the same time, the final asset structure is more diversified, as the majority of affiliates perform subleasing (leasing) transactions with a wide range of market counterparties.

The Company’s comfortable loss absorption buffer is coupled with adequate internal capital generation capacity. The Company’s capital cushion is sizable; at the end of 2018, the capital adequacy ratio (CAR) stood at 17.4%. In October 2018, the Company’s capital was increased by RUB 2.4 bln due to the conversion of 28 series bond issues into ordinary shares. ACRA assesses the Company’s ability to generate capital as adequate; the averaged capital generation ratio (ACGR) for 2014-2018 amounted to approximately 110 bps.

Adequate lease portfolio.  Transfin-M has demonstrated adequate asset quality over a long period of time. In 2018, the share of problem and potentially problem loans in the Company’s lease portfolio amounted to 5.9%.

Highly concentrated funding structure. The diversification of the Company's liabilities by source is considered satisfactory: they are formed almost in equal parts (around 40%) by bank loans and debt securities. At the same time, the dependence on funding from the parent company remains high, as affiliates of BLAGOSOSTOYANIE own over 60% of the issued bond portfolio. The share of the five largest lenders is assessed as elevated (49%).

Satisfactory liquidity position. In ACRA’s base case scenario (taking into account TransFin-M's plans for the expansion of its leasing business), the Company demonstrates an adequate cash reserve at the end of each quarter within the 12 to 24-month horizon; the estimated current liquidity ratio is around 1.1 on average. There is no need for significant refinancing of current liabilities within the specified horizon. Peak repayments will come after 2024. In ACRA’s stress scenario, the need to attract emergency liquidity is elevated, but can be fully covered by available sources.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • CAR no lower than 15% within the 12 to 18-month horizon;
  • Annual growth rate of the lease portfolio (net investment in lease) within 15%;

Potential outlook or rating change factors

The Developing outlook assumes with equal probability either an upgrade or a downgrade of the rating within the 12–18-months horizon.

A positive rating action may be prompted by:

  • Significant growth in the creditworthiness of the SO while maintaining the Company’s strategic importance;
  • Considerable increase in the diversification of the funding structure;
  • Pronounced improvement in the liquidity position.

A negative rating action may be prompted by:

  • Deterioration of the SO’s creditworthiness or decrease in the propensity of the SO to support the Company;
  • Substantial decrease in CAR due to active business expansion or increase in the cost of risk;
  • Deterioration of lease portfolio quality;
  • Significant deterioration of liquidity position.

Rating components

SCA: bbb-.

Adjustments: none.

Support: +3 notches to the SCA.

Issue ratings

“TransFin-M” PC, 001P-02-боб series (RU000A0JXK99), maturity date – February 22, 2027, issue volume – RUB 5 bln – A-(RU).

“TransFin-M” PC, 001P-03-боб series (RU000A0JXVB1), maturity date – June 28, 2027, issue volume – RUB 500 mln – A-(RU).

“TransFin-M” PC, 001Р-04 series (RU000A0ZYEB1), maturity date – October 14, 2027, issue volume – RUB 10 bln – A-(RU).

“TransFin-M” PC, 001P-05 series (RU000A0ZYFS2), maturity date – November 3, 2027, issue volume – RUB 600 mln – A-(RU).

Credit rating rationale. The bonds listed above represent senior unsecured debt of
“TransFin-M” PC. Due to the absence of either structural or contractual subordination of the bonds, ACRA ranks the bonds pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, the reimbursement rate for unsecured debt relates to category II; therefore, the bond issues are assigned the credit rating A-(RU), i.e. on par with “TransFin-M” PC.

Regulatory disclosure

The credit ratings were assigned to “TransFin-M” PC and bonds (RU000A0JXK99, RU000A0JXVB1, RU000A0ZYEB1, RU000A0ZYFS2) issued by “TransFin-M” PC under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Leasing Companies Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. To assign a credit rating to the above bond issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied.

The credit ratings assigned to “TransFin-M” PC and bonds (RU000A0JXK99, RU000A0JXVB1, RU000A0ZYEB1, RU000A0ZYFS2) issued by “TransFin-M” PC were first published by ACRA on August 2, 2017, August 23, 2017,  August 23, 2017, November 14, 2017, and February 20, 2018, respectively. The credit rating of “TransFin-M” PC and its outlook and the credit ratings assigned to bonds (RU000A0JXK99, RU000A0JXVB1, RU000A0ZYEB1, RU000A0ZYFS2) issued by “TransFin-M” PC are expected to be revised within one year following the publication date of this press release.

The assigned credit rating is based on the data provided by “TransFin-M” PC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of “TransFin-M” PC and statements of “TransFin-M” PC composed in compliance with RAS. The credit rating is solicited, and “TransFin-M” PC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by “TransFin-M” PC in its financial statements have been discovered.

ACRA provided additional services to “TransFin-M” PC. No conflicts of interest were discovered in the course of credit rating assignment.

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