ACRA has affirmed the credit rating of 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 in 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 6M 2020, the Company ranked 41st in new business and 51st in leasing portfolios in Russia (47th and 62nd, respectively, a year earlier). ACRA notes the fairly high growth rate of the Company’s leasing business. The volume of new business during this period increased by 1.3x, while the volume of its leasing portfolio increased by 1.6x. The leasing portfolio structure is dominated by road construction and construction equipment, as well as motor transport (34% and 32% of the total volume, respectively), with real estate leasing accounting for another 6%. ACRA estimates the liquidity of assets transferred under leasing agreements, as well as the concentration of the customer base, as average. As of June 30, 2020, the Company’s largest client accounted for 6.5% of the leasing portfolio, while the ten largest clients accounted for 41%.
Strong capital adequacy. According to IFRS statements for 6M 2020, the Company’s capital adequacy ratio stood at 9.6%. Over the past five years, the Company’s average capital generation ratio has been estimated at around 850 bps. ACRA assesses the Company’s capital adequacy as strong given the significant amount of revenue actually received and expected to be recognized in future periods.
High quality leasing portfolio. According to the leasing portfolio analysis, potentially problem debt does not exceed 2.3% 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 55% and 25% of the balance sheet, respectively, for 6M 2020). The Company actively utilizes bond market instruments. As of October 31, 2020, the Company had four outstanding bond issues totaling RUB 1.628 bln. 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 9.5% 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;
- Deterioration in leasing portfolio quality;
- Deterioration in liquidity and funding position.
Rating components
SCA: bbb+.
Adjustment: none.
Support: none.
Issue ratings
Bond loan, Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit 001P-03 series issued by Leasing Company Simple Solutions LLC (RU000A100Q35), maturity July 7, 2026; issue volume, RUB 400 mln — BBB+(RU)
Bond loan, Exchange-traded interest-bearing non-convertible bond subject to centralized title registration issued by Leasing Company Simple Solutions LLC, 002P-01 series (RU000A1022E6), maturity, August 10, 2029, issue volume, RUB 1 bln — BBB+(RU).
Credit rating rationale. Due to the absence of either structural or contractual subordination of the issue, ACRA regards these issues as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, the repayment level of the unsecured debt belongs to category II. Therefore, the credit rating of the issues are equivalent to that of Leasing Company Simple Solutions LLC, i.e. BBB+(RU).
Regulatory disclosure
The credit ratings have been assigned to Leasing Company Simple Solutions LLC and bonds issued by Leasing Company Simple Solutions LLC (RU000A100Q35, RU000A1022E6) under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Leasing Companies on 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 credit ratings to the above bond issues, ACRA also applied the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale for the Russian Federation.
The credit ratings of Leasing Company Simple Solutions LLC and bonds issued by Leasing Company Simple Solutions LLC (RU000A100Q35, RU000A1022E6) were published for the first time by ACRA on November 15, 2019, December 18, 2019, and September 9, 2020, respectively. The credit rating of Leasing Company Simple Solutions LLCvand its outlook, as well as the credit ratings of bonds issued by Leasing Company Simple Solutions LLC (RU000A100Q35, RU000A1022E6), are expected to be revised within one year following the publication date of this press release.
The credit ratings are 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 consolidated IFRS statements of Leasing Company Simple Solutions LLC and statements composed in compliance with RAS. The credit ratings are solicited, and Leasing Company Simple Solutions LLC participated in their assignment.
Disclosure of deviations from approved methodologies. The capital adequacy assessment was increased by one point as, according to IFRS standards, the amount of capital should be reduced by the amount of actual revenue received, which should be formally recognized in future periods. This leads to a deterioration in the assessment of the sub-factor. However, according to ACRA, the risk of actual loss of this revenue is practically absent.
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.
