Fitch Affirms International Personal Finance plc at 'BB+'; Outlook Stable

Fri May 30, 2014 12:10pm EDT

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(The following statement was released by the rating agency) LONDON, May 30 (Fitch) Fitch Ratings has affirmed UK-based International Personal Finance Plc's (IPF) Long-term Issuer Default Rating (IDR) at 'BB+', Short-term IDR at 'B' and senior unsecured debt rating at 'BB+'. The Outlook on the IDR is Stable. KEY RATING DRIVERS: IDRS AND SENIOR DEBT The ratings reflect IPF's proven track record in providing unsecured home-collected loans to non-standard borrowers in emerging markets. IPF has demonstrated to be a high-margin cash-generative business and has consistently reported strong and stable recurrent profitability over the years. Profits have regularly fed into capital, leading to modest leverage which in Fitch's view supports the ratings. The ratings also reflect IPF's high credit, operational, regulatory and FX risks arising from its presence in and exposure to emerging markets as well as IPF's modest business scale and full reliance on market funding. These risks and the unsecured nature of its business currently cap the ratings below investment grade. Continuing regulatory scrutiny on consumer credit acts as a potential negative rating driver for IPF. In particular, it continues to face significant regulatory risks stemming from fairly frequent investigations into high-cost credit. IPF reported sound pre-tax profits (PBT) in 2013, backed by business expansion across all operating countries. Group revenues grew 10.6% (at constant exchange rates, CERs) mostly driven by Poland, Mexico and the Czech Republic. Although Fitch expects revenue growth and diversification to continue as IPF expands into new markets and develops new products, it will likely take several years for new initiatives to contribute materially to results. Poland and the Czech Republic will continue to be main contributors to the group's PBT. Fitch expects earnings to remain exposed to FX volatility. IPF's business model is characterised by significant arrears, but the proportion of impairment to revenues has remained stable over time. IPF's risk controls and management are robust but Fitch acknowledges that IPF is rapidly growing its business and receivables in some of its markets, including Mexico, and has relaxed credit conditions in some other markets such as Hungary. Rapid growth could eventually put pressure on leverage and asset quality through higher impairments. Nonetheless, the level of impaired receivables over 90 days overdue has remained stable at 25% of gross receivables and impairments have been within the target of 25%-30% of revenues. IPF is not allowed to take deposits and is fully reliant on market funding. Although Fitch acknowledges that the company has made efforts to achieve diversification through market issuance, it remains fully reliant on bonds and bank facilities. However, refinancing risk is somewhat mitigated by the short duration of the credit it provides and the company's sound track record of wholesale market access in its operating countries. During 2013 IPF continued to issue bonds in its local markets and in April 2014 it managed to refinance its eurobond maturing in 2015 at a much lower cost, extending the maturity of a significant portion of its funding to 2021. Moreover, IPF had GBP175m funding headroom at end-2013, which in Fitch's view provides an additional funding source to fund business expansion should wholesale markets become disrupted. At end-2013, the group revised the targeted equity/receivables ratio to 50% from 55% and aims to gradually reduce the ratio to 45%. However, Fitch continues to view this level as comfortable for the rating level and slightly more conservative than peers. RATING SENSITIVITIES: IDRS AND SENIOR DEBT Fitch does not envisage taking positive or negative rating action in the medium term on IPF, as reflected in the Stable Outlook. Upside potential to the IDRs is limited given IPF's reliance on home-collected credit, significant risks from unsecured lending in emerging markets and lack of revenue diversification. The ratings could be downgraded should there be an increase in leverage; a significant deterioration in its funding position; if IPF faces greater refinancing risk because of weakened market conditions; if arrears increase significantly and performance deteriorates materially or if the business model is threatened by further regulatory or competitive challenges. IPF's senior debt rating is driven by the company's Long-term IDR and is therefore sensitive to changes in the latter. Contact: Primary Analyst Maria Rivas Director +44 20 3530 1163 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Natalia Shakhina Analyst +44 20 3530 1577 Committee Chairperson Erwin Van Lumich Managing Director +34 93 323 8403 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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