ACRA assigns BBB+(RU) to Leasing Company Simple Solutions LLC, outlook Stable

ACRA has assigned a credit rating to Leasing Company Simple Solutions LLC (hereinafter, the Company) based on the Company’s moderate business profile, strong capital adequacy and risk profile, and satisfactory liquidity and funding assessment.

The Company is a medium-sized full-service leasing company, whose main activities include the financial leasing of vehicles and equipment for customers from various industries and regions of the Russian Federation. The Company is the largest asset of the Simple Solutions Group, which also includes several companies active in other areas. The Company’s ultimate beneficiary is an individual connected with management.

Key rating assessment factors

Moderate business profile assessment. For 9M 2019, the Company ranked 49th in terms of new business and 56th in terms of leasing portfolio in Russia (62nd and 76th, respectively, a year earlier). ACRA notes the high growth rate of the Company's leasing business. The volume of new business during this period increased by 2.5x, while the volume of its leasing portfolio increased by 2.8x. Motor transport, road construction, and construction equipment account for approximately 25% of the total leasing portfolio. Equipment for the metallurgical industry accounts for another 8%. ACRA estimates the liquidity of assets transferred under leasing agreements, as well as the concentration of the customer base, as average. As of September 30, 2019, the Company’s largest client accounted for 15% of the leasing portfolio, while the 10 largest clients accounted for 56%.

Strong capital adequacy. According to financial statements for 9M 2019, the Company's capital adequacy ratio was about 15%. Over the past five years, the Company’s average capital generation ratio (ACGR) has been estimated at around 700 bps. According to ACRA, the combination of these estimates indicates strong capital adequacy.

High quality leasing portfolio. Since its inception, the Company has had virtually no overdue debt. According to the results of the leasing portfolio analysis, potentially problem debt does not exceed 0.5% of the total amount of expected leasing revenues. According to ACRA, the credit quality of the largest lessees is at a high level. In addition, ACRA does not see significant market or operational risks, which leads to a strong final risk profile assessment.

The company's funding structure is moderately diversified. Liabilities are formed mainly by bank loans and debt securities (about 50% and 20% of the balance sheet, respectively, for 9M 2019). The Company actively utilizes bond market instruments. As of September 30, 2019, the Company had three outstanding bond issues totaling RUB 361 mln (the placement of the third issue is in progress). ACRA expects bond funding to grow, and estimates the share of the five largest creditor banks as increased (about 40%).

Satisfactory liquidity and funding. In the ACRA’s base case scenario, which takes into account plans to develop new business, the Company exhibits a positive cash reserve at the end of each quarter for the next 12-24 months (the forecasted current liquidity ratio exceeds 1.0). In ACRA’s stress scenario, a liquidity deficit is possible. However, this can be overcome through operational cash flow management by adjusting the number of new lease agreements.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • CAR above 11% within the 12 to 18-month horizon;
  • Share of leasing agreements with overdue payments under 5%.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Strengthened position in the Russian leasing market;
  • Improved liquidity and funding position.

A negative rating action may be prompted by:

  • Substantial drop in capital adequacy due to rapid growth in business or increased cost of risk;
  • Decreased ability to generate capital;
  • Significant deterioration in leasing portfolio quality;
  • Deterioration in liquidity and funding position.

Rating components

SCA: bbb+.

Adjustment: none.

Support: none.

Regulatory disclosure

The credit rating has been assigned to Leasing Company Simple Solutions LLC 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 and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

A credit rating has been assigned to Leasing Company Simple Solutions LLC for the first time. The credit rating and its outlook 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 Leasing Company Simple Solutions LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using statements of Leasing Company Simple Solutions LLC composed in compliance with RAS. The credit rating is solicited, and Leasing Company Simple Solutions LLC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by Leasing Company Simple Solutions LLC in its financial statements have been discovered.

ACRA provided no additional services to Leasing Company Simple Solutions LLC. No conflicts of interest were discovered in the course of credit rating assignment.

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