ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Intrum Justitia ‘BB+/B’ Ratings Affirmed On Announced Strategic Partnership With Intesa Sanpaolo; Outlook Stable

          LONDON (S&P Global Ratings) April 24, 2018--S&P Global Ratings today affirmed its 'BB+/B' long- and short-term issuer credit ratings on Sweden-based credit management services provider Intrum Justitia AB (publ). The outlook is stable. 
          At the same time, we affirmed the 'BB+' issue rating on Intrum's senior unsecured notes. The recovery rating is unchanged at '4', indicating our expectation of average recovery (30%-50%; rounded estimate: 40%) in the event of payment default.
          The rating affirmation reflects our view that the transaction provides Intrum medium-term opportunities associated with its new strategic partnership, improved scale, and strengthened market position in Italy, but also brings heightened operational risks and a short-term increase in leverage.
          Although the transaction does not diverge materially from Intrum's communicated strategy, we believe that fast growth in the Italian market could lead to increasing risks with respect to portfolio mispricing and understanding the Italian market's distinctive characteristics. We also acknowledge that Intrum is only part way through its multi-phase transformational merger with Lindorff, which took place less than 12 months ago.
          Despite the challenges of higher leverage and material changes for the group, we currently consider that a negative outlook would overstate the likelihood of a possible future downgrade. We believe that Intrum's strategic agreement with Intesa somewhat reduces risks typically associated with merger and acquisition activity. To date, Intrum has also integrated Lindorff as expected while improving its credit metrics in line with its guidance. However, we will continue to monitor Intrum's risk appetite in pursuing its growth strategy in the next 12 months. We believe that further transactions of a similar nature could raise questions with respect to the group's commitment to its financial policy.
          On April 17, 2018, Intrum announced that it had entered into a strategic partnership with Intesa Sanpaolo with respect to managing a large portion of the bank's NPLs. The transaction is split into two parts:
          Intrum will hold a 51% share in a joint venture servicer, which will integrate Intesa's collections platform with most of Intrum's existing servicing operations in Italy. Intesa will hold the remaining 49%; and
          Intrum will hold a 40.8% economic interest in an SPV that has purchased NPLs from Intesa. The purchased assets have a gross book value of EUR10.8 billion and will be part-financed by new nonrecourse asset-backed notes. Intesa will hold 49% of the SPV, with CarVal Investors holding the balance.
          We understand that the joint venture servicer will be consolidated on Intrum's balance sheet, whereas the SPV will not be consolidated in Intrum's financial reporting.
          Our ratings on Intrum benefit from the strength of its market positions across many European markets, its well-established operations, and revenue diversity. If well managed, we believe that over time the group will benefit from the position it is looking to establish in Italy. The stock of NPLs in the Italian market makes up a large proportion of total European NPLs and therefore presents a significant opportunity for debt collection companies to grow and make further use of their scale.
          However, the Italian market has distinctive characteristics and the stock of NPLs is heavily biased toward secured debt. Given Intrum's historical focus on collecting unsecured consumer debt and the relative lack of maturity in the collections framework in Italy, we believe this transaction represents an operational challenge for Intrum. We have not taken a negative rating action because we believe that this is substantially mitigated by the strategic partnership with Intesa. As one of Italy's largest banks, we believe that Intrum is well-placed to benefit from Intesa's data and local knowledge of the Italian market.
          Although there is a near-term increase in Intrum's leverage, the transaction has a limited impact on our medium-term view of Intrum's credit metrics. This is because we expect an acceleration in its EBITDA generation in the 12 months after the transaction closes. We continue to expect that its metrics will trend toward the weaker end of the following ranges over the next 12 months, before improving further after that:
          - Gross debt to adjusted EBITDA of 3x-4x; and
          - Funds from operations (FFO) to gross debt of 20%-30%.
          We also expect that its adjusted EBITDA coverage of interest expense will remain comfortably above 6x.
          We expect Intrum will go through a phase of digesting its recent activity, thereby reducing the risk of further transformational growth. We believe that the Italian portfolio investment in question will represent a significant amount of the group's planned portfolio investments for 2018. We do not include the SPV's asset-backed notes used to finance the portfolio purchase in our calculation of Intrum's gross debt measure. This is because we believe that the nonrecourse nature of the notes and the strategic partnership with Intesa represent a sufficient transfer of risk away from Intrum.
          However, we do consider that off-balance-sheet financing activities could increase complexity. We also recognize Intrum's ability and incentive to support the SPV if it were to experience temporary underperformance. A further increase in complexity or signs of a strain on Intrum's resources through support for the SPV could lead us to take a negative rating action. Given Intrum's strong liquidity position, our base-case view is that this would not place a material amount of pressure on the group.
          The stable outlook on Intrum reflects our expectation that the inherent risks of its multiyear execution process required to integrate Lindorff and the new Italian operations will be well managed. Our base case is that Intrum's appetite for further transformational growth will reduce as it implements its strategic plan, and that it will improve the group's credit metrics over the next 12 months.
          We could lower the issuer credit rating if Intrum's gross debt to adjusted EBITDA looks likely to remain above 4x or if FFO to debt is below 20% over the next 12 months. Such a scenario could unfold if it has difficulties implementing its strategic plan or is less committed to meeting its leverage guidance, likely as a result of further acquisitive or aggressive growth.
          We could also lower the rating if Intrum's appetite for further off-balance-sheet transactions leads us to believe that the potential for strain on Intrum's resources is increasing or the group is becoming more complex. Given Intrum's current credit metrics and its task of implementing its strategic plan, we consider upside to the ratings as limited over the next 12 months. We could consider potential future upside if Intrum demonstrates successful integration, an improvement in credit metrics, and if we believed its risk appetite for further significant growth is reducing.