ACRA affirms A-(RU) to “TransFin-M” PC, changes outlook to 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 a high likelihood of extraordinary support from its supporting organization, non-state pension fund “BLAGOSOSTOYANIE” (hereinafter – BLAGOSOSTOYANIE, the Supporting Organization, or the SO). Compared to other RF-based issuers, the Company’s creditworthiness is assessed as high. The outlook has been changed to Developing due to the sale of TransFin-M to a new shareholder planned by BLAGOSOSTOYANIE. TransFin-M is a specialized lease company focused on financial lease in transportation means, mainly, rolling stock (the Company is among the largest Russian lease companies in terms of lease portfolio). The actual parent company of TransFin-M is non-state pension fund “BLAGOSOSTOYANIE”, the largest pension fund owned by Joint Stock Company “Russian Railways” (ACRA rating – AAA(RU), outlook “Stable”).  

Key rating assessment factors

Further dynamics of the Company’s credit rating will be determined by two scenarios. A positive rating action is possible in the following cases: 1) the sale of the Company to a shareholder with a higher credit quality compared to BLAGOSOSTOYANIE, while maintaining high strategic importance of TransFin-M for the new shareholder; 2) the revision of the risk profile assessment in case of retaining a stable quality of the Company's lease portfolio. A negative rating action may be prompted by a significantly lower credit quality of the new shareholder, or by a lower strategic importance of TransFin-M.

Adequate business profile. TransFin-M is among top lease companies, one of the leaders in the railcar lease market and a major rolling stock operator, acting through a range of its affiliates. This explains the persistently high concentration of the Company’s lease portfolio on rolling stock. However, ACRA positively assesses the decline in the share of this segment to 84% as of December 31, 2017 against 89% a year earlier due to the growth of segments with higher margin. ACRA also notes poor diversification of the lease portfolio by customer (the share of the top ten lessees is 82%), the majority of which (more than 70% of the lease portfolio) are captive companies. At the same time, the final asset structure is more diversified, since the majority of affiliates perform subleasing (leasing) transactions with a wide range of market counterparties.

Comfortable loss absorption buffer is coupled with adequate internal capital generation capacity. TransFin-M has a sizable capital cushion: as of end-2017, the capital adequacy ratio (CAR) was 15.9%.  In December 2017, the Company's capital was increased by RUB 3 bln due to conversion of 27 series bond issue into ordinary shares and by another RUB 3 bln due to an additional issue of shares. In October 2018, it is planned to increase capital by additional RUB 3.5 bln by conversion of 28 series bond issue. The Company’s own ability to generate new capital is assessed as adequate: for the period of 2012-2017, its averaged capital generation ratio (ACGR) amounted to approximately 130 bps.

Improving quality of the lease portfolio.  Transfin-M demonstrates an adequate quality of assets throughout an economic cycle. In 2017, the share of problem and potentially problem loans in the Company’s lease portfolio decreased, amounting to less than 3% as of March 31, 2018.

Highly concentrated funding structure. Diversification of the Company's liabilities by source is considered satisfactory: they are formed almost in equal parts by bank loans (47%) and debt securities (49%). At the same time, dependence of funding on the parent company remains high, as affiliates of BLAGOSOSTOYANIE own over 70% of issued bond portfolio, including convertible bonds. The share of the five largest lenders (excluding affiliated persons) is estimated as moderate (35%).

Satisfactory liquidity position. In ACRA base case scenario (taking into account TransFin-M's plans for expansion of its leasing business), the Company demonstrates an adequate cash reserve at each quarter-end on the 12 to 24-month horizon: the estimated current liquidity ratio exceeds 1.1 on average. There is no need for significant refinancing of current liabilities on the specified horizon.  Peak repayments fall beyond 2024. The fact that the Company retains a sufficient cash reserve (8% of assets at end-2017) is assessed as positive by ACRA.  In ACRA stress scenarios, liquidity shortage may reach 10% as a result of high concentration of the Company’s lease portfolio. At the same time, sources of emergency liquidity are largely concentrated within the parent company perimeter, which limits the final assessment of the factor.

Key assumptions

  • Retaining the Company’s business model within the 12 to 18-month horizon;
  • CAR of at least 15% within the 12 to 18-month horizon;
  • Lease portfolio annual growth rate (net investment in lease) within 15%;
  • Share of problem and potentially problem loans under 5%;
  • Net interest margin in financial lease segment within 5%. 

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 to 18-month horizon.

A positive rating action may be prompted by:

  • A significant growth in creditworthiness of the SO, while maintaining strategic importance of the Company;
  • Retaining the current amount of problem loans;
  • A considerable increase in diversification of the funding structure;
  • A pronounced improvement of the liquidity position.

A negative rating action may be prompted by:

  • A tangible deterioration of the SO’s creditworthiness, or decrease in propensity of the SO to support the Company;
  • A material decrease in CAR due to active business expansion, or increase in the cost of risk;
  • A considerable deterioration of lease portfolio quality;
  • A 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 the ACRA methodology, the reimbursement rate for unsecured debt relates to category II; hence, 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 rating action date (July 31, 2018).

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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