ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Together Financial Services Affirmed At ‘BB-‘ On Proposed Refinancing; Outlook Stable; Senior Holdco Notes Rated ‘B+’

          LONDON (S&P Global Ratings) Sept. 14, 2018--S&P Global Ratings today affirmed its 'BB-' long-term issuer credit rating on Together Financial Services Ltd. The outlook is stable.
          At the same time, we affirmed the 'B+' long-term issuer credit rating on Bracken MidCo1 PLC. The outlook is stable.
          We also assigned a 'B+' issue rating to the proposed GBP350 million senior PIK toggle notes issued by Bracken Midco1 PLC. We also affirmed the existing 'BB-' issue ratings on senior secured notes issued by Jerrold Finco PLC, and guaranteed by Together Financial Services Ltd.
          Our rating affirmations reflect our view that the proposed refinancing transaction does not materially affect the group's consolidated capitalization, and does not indicate any change in its risk appetite, niche business profile, or its funding position. Pro forma capitalization is unaffected on day one because we already analyze the group on a consolidated basis, taking into account the intermediate non-operating holding companies that issue the existing and proposed debt. 
          Together's current strategic focus is consistent with the actions it has implemented in recent years. Its primary focus is on furthering its position in the non-standard mortgage market, demonstrated by its fast pace of growth in new advances. We do not think its strategy will materially change Together's current profile; rather, it will continue to make steady progress in expanding its market position and franchise. Together has also made progress in diversifying its funding base and building out its management and governance framework to support its growth plans. If executed well, we consider its strategy should continue to support its overall creditworthiness at the current rating level. 
          Together's low loan-to-value (LTV), high-margin mortgage lending remains the engine of its profitability, making up the vast majority of Together's GBP121 million statutory pre-tax profit in the 12 months to June 30, 2018. Pressure on its net interest margin from changes in its lending mix and mortgage market competition was partly offset by liability margin improvements. No material one-off items decreased profitability, but it was constrained by an increase in operating expenses reflecting its recent investments. Asset quality metrics have continued to improve, with reported total arrears (including forborne loans) reducing to 8% of the total loan book, down from as high as 21% in 2014. Part of this is due to the reduction of its legacy development loan portfolio, but some reflects Together's fast pace of loan growth, which somewhat distorts asset quality metrics. In the past 12 months Together's net loan book has grown 32% to close to GBP3 billion.
          We expect this brisk pace of credit growth to continue over our 12 month outlook horizon. Although the refinancing transaction in isolation is neutral for the group's capitalization, we expect it to trend down as the pace of loan growth is maintained. We calculate our June 30, 2018, risk-adjusted capital (RAC) ratio at 10.7%, down from 11.4% a year earlier. 
          Taking into account credit growth, profitability, and the effects from transitioning to IFRS 9 on July 1, 2018, we forecast the RAC ratio to trend in the 9.25%-9.75% range over the following 12-18 months. This is the primary reason for us lowering our capital and earnings assessment. However, we recognize that our RAC ratio does not capture our expectation that Together will proportionately grow its lower risk first-charge retail mortgages, which we believe to be better quality than the average of its existing portfolio. Moreover, we take into account that Together's historical loss experience has been supportive of its profitability, reflecting the low weighted average indexed LTV of 55%, which has been stable for many years. We have adjusted our risk position assessment to reflect this. 
          The 'B+' long-term issue credit rating on MidCo is one notch lower than the rating on Together, reflecting structural subordination. Specifically, we believe that the senior secured notes guaranteed by Together have preferential rights to cash flows generated by the operating entities. We also take into account that Together is not subject to regulatory capital requirements. Consistent with our criteria, we equalize the issue rating on the proposed GBP350 million senior PIK toggle notes with the credit rating on Midco, the issuer. 
          The stable outlooks on Together and MidCo reflect our expectation that the group will maintain its solid earnings performance, consistent strategic focus, and acceptable asset quality over our 12-month rating horizon. We also consider that the group has strengthened its corporate governance and operational infrastructure as it has expanded, and we expect that it will continue to develop these areas. Under our base-case scenario, we expect the group's consolidated capitalization and leverage to stabilize over the next 18 months, and we view management as committed to adequate capitalization.
          We could lower the ratings if asset quality deteriorated, or if our RAC ratio continued to briskly decline. This could happen if Together's recent phase of investments did not lead to improving profitability and positive internal capital generation. We could also lower the ratings if loan growth is greater than we expect, or we believe that such growth could deteriorate its asset quality. 
          Over the next 12 months we consider upside to the ratings as limited due to its brisk loan growth. However, we could raise the ratings if the group's consolidated capitalization increased substantially beyond our current base-case expectations. As a non-bank lender, Together's funding and liquidity position is relatively sound. However, further diversity in its funding mix could also support a higher rating, especially given its reliance on regularly refreshing its sources of funding to maintain its current growth rate.