RPT-Fitch assigns Virtual Lease Services Limited ABS primary servicer rating

Thu Sep 5, 2013 6:25am EDT

Sept 5 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Virtual Lease Services Limited (VLS) a UK asset backed securities (ABS) Primary Servicer Rating of 'ABPS3-'.

VLS operates in three main sectors: business process outsourcing and management of process drive instalment credit portfolios; provision of standby servicing to the securitisation markets; and management of rental programmes for equipment manufacturers and associated resellers. VLS does not currently act as a servicer of consumer loans, credit cards or auto loans.

As at 31 May 2013, VLS managed a portfolio totalling GBP201.3m and 34,176 positions. The portfolio comprises finance leases (66.37%), commercial loans - block (14.65%), commercial loans - companies (8.24%), small ticket minimum term rental/services agreements (7.90%), hire purchases (2.39%), operating leases (0.26%), consumer loans (0.17%) and sales ledgers (0.02%).

The rating reflects VLS's relatively small business that employs 15 staff. Although VLS has been involved with asset finance since 1999, it is only since its recent acquisition in 2011 by a joint venture between Netsol (unrated, 51% ownership) and Investec Bank Limited (BBB-/Stable/F3, 49% ownership) that the business has refocused its goals and activities to support large scale business process outsourcing contracts. The rating also takes into account the restructuring of the senior management group during the past 12 months, which has resulted in a reduction in both servicing industry experience and company tenure at this level.

VLS uses the Netsol developed system as its servicing platform. The system appears easy to use with strong reporting capabilities. Netsol is currently redeveloping the servicing platform to deliver enhancements and further reflect VLS's requirements. This major upgrade is expected to be completed in November 2013. Fitch believes the use of Netsol's servicing platform is an obvious benefit for the business in that system upgrades, support and maintenance can be done more quickly and efficiently without having to rely on third-party support.

The rating is further supported by VLS's strong cash management skills. The company employs a dedicated cash management specialist with over 20 years of industry experience. Since the company started operating in 1999, VLS has collected in excess of GBP1bn with only GBP10,000 of unallocated payments. Fitch believes this demonstrates the strength of VLS's cash management process. VLS currently has no formal training and development framework in place.

Historically training has been done 'on the job' with employees encouraged to pursue their own professional development independently. Whilst Fitch has concerns about the lack of training offered in the past, these concerns are somewhat alleviated by VLS's plans to introduce a formal training framework before end of 2013.

The rating also takes into consideration the lack of internal audit activity and formal quality checking. Fitch considers internal audit to be a key factor in internal governance and risk management. However, the agency recognises that Netsol has started a regular audit process and Investec intends to do the same.

Fitch would still like to see internal audit and quality checking develop and mature in the short to medium term.

Fitch used its global servicer rating criteria in analysing the servicer's operations and financial condition. The analysis is based on information provided to Fitch by VLS.

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