The credit rating of Simple solutions Leasing company LLC (hereinafter, the Company) is based on the Company’s moderate business profile, adequate capital adequacy, strong risk profile, and satisfactory liquidity and funding assessment.

The credit rating outlook has been changed from Stable to Negative due to the continuing growth of the Company’s assets outrunning the growth of profits. This may push down the capital adequacy assessment and, ultimately, impair the credit rating.

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

KEY ASSESSMENT FACTORS

Moderate business profile assessment. In 2023, the Company resumed active conclusion of lease agreements after a slowdown in 2022, which was associated with the Company’s decision to maintain the portfolio quality and the high level of liquidity in the conditions of deteriorating operating environment. The volume of lease portfolio for the 12 months preceding June 30, 2023 grew by 40%. The portfolio structure is dominated by cars and trucks (24% of the total portfolio), road construction equipment (17%), metallurgical equipment (15%), and special equipment (12%). The share of equipment has grown in the portfolio to 22%, excluding metallurgical equipment. ACRA estimates the liquidity of leased assets as medium. The Agency notes the Company’s positive practice and approach to retaining the customer base: as of June 30, 2023, the Company’s largest customer accounted for 6.9% of the lease portfolio, while the ten largest customers accounted for 35% (7.1% and 39% a year earlier).

Adequate assessment of capital adequacy. The Company’s capital adequacy ratio calculated in accordance with ACRA’s methodology stood is 9.0%. For the past five years, the Company’s averaged capital generation ratio is estimated at around 306 bps. ACRA assesses the Company’s capital adequacy as adequate given the significant amount of revenue actually received and expected to be recognized in IFRS statements in future periods. However, in view of the persistent decline of capital generation rates due to the asset growth outrunning the growth of profits, ACRA has changed the Company’s credit rating outlook, thereby reflecting a potential negative effects of this factor on the rating in the future.

High quality lease portfolio. As of June 30, 2023, overdue and restructured leasing contracts in the leasing portfolio were almost absent. According to ACRA’s estimates, the credit quality of the largest lessees is rather high. In addition, the Agency does not see significant market or operational risks, which determines the strong final risk profile assessment.

The Company’s funding structure is diversified. Since the date of the last rating action, the share of bank loans in the Company’s liabilities has grown; in addition, the Company has continued to use bond market instruments. As of June 30, 2023, the liabilities included bank loans and bonds: 61% and 19%, respectively (47% and 26% in H1 2022). As of June 30, 2023, the Company had three outstanding bond issues totaling RUB 3.65 bln. Although the share of bank loans has increased, ACRA notes the sustainably good diversification of funding among credit institutions: the share of the largest lender is 10% of liabilities, and the share of the five largest lender banks is 40%.

Satisfactory liquidity position. 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.

  • Share of lease agreements with overdue payments under 5%.

potential outlook or rating change factors

The Negative outlook assumes that the rating will highly likely be downgraded 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:

  • Decrease in capital adequacy due to rapid growth of business or increased cost of risk;

  • Lower assessment of the ability to generate capital;

  • Decline in the Company’s sustainability due to the fast expansion of business and the growth of share of non-core assets on the balance sheet;

  • Deterioration in the lease portfolio quality;

  • Deterioration in the liquidity and funding position.

rating components

SCA: bbb+.

Adjustments: none.

ISSUE RATINGS

Exchange-traded non-convertible interest-bearing certificated bond subject to mandatory deposit, 001P-03 series issued by Simple solutions Leasing company LLC (ISIN RU000A100Q35), maturity date: July 7, 2026, issue volume: RUB 400 mln — BBB+(RU).

Exchange-traded non-convertible interest-bearing uncertificated bond subject to centralized title registration issued by Simple solutions Leasing company LLC, 002P-01 series (ISIN RU000A1022E6), maturity date: August 10, 2029, issue volume: RUB 1.75 bln — BBB+(RU).

Exchange-traded non-convertible interest-bearing uncertificated bond subject to centralized title registration issued by Simple solutions Leasing company LLC, 002P-02 series (ISIN RU000A106EР1), maturity date: May 6, 2032, issue volume: RUB 1.5 bln — BBB+(RU).

Rationale. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu to 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 ratings of the issues are equivalent to that of Simple solutions Leasing company LLC, i.e. BBB+(RU).

REGULATORY DISCLOSURE

The credit ratings have been assigned to Simple solutions Leasing company LLC and the bonds issued by Simple solutions Leasing company LLC (ISIN RU000A100Q35, RU000A1022E6, RU000A106EР1) under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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. The Methodology for Assigning Credit Ratings to Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.

The credit ratings of Simple solutions Leasing company LLC and the bonds issued by Simple solutions Leasing company LLC (ISIN RU000A100Q35, RU000A1022E6, RU000A106EР1) were published by ACRA for the first time on November 15, 2019, December 18, 2019, September 9, 2020, and June 26, 2023, respectively. The credit rating of Simple solutions Leasing company LLC and its outlook, as well as the credit ratings of the bonds issued by Simple solutions Leasing company LLC (ISIN RU000A100Q35, RU000A1022E6, RU000A106EР1), are expected to be revised within one year following the publication date of this press release.

The credit ratings were assigned based on data provided by Simple solutions Leasing company LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of Simple solutions Leasing company LLC and statements composed in compliance with RAS. The credit ratings are solicited, and Simple solutions Leasing company LLC participated in their assignment.

In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

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

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