Fitch Affirms Aberdeen Asset Management at 'A'/'F1'; Outlook Stable

Wed Jun 18, 2014 5:15pm EDT

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(The following statement was released by the rating agency) LONDON, June 18 (Fitch) Fitch Ratings has affirmed Aberdeen Asset Management Plc's (AAM) Long-term Issuer Default Rating (IDR) at 'A' and Short-term IDR at 'F1'. The Outlook on the Long-term IDR is Stable. The operating environment for traditional investment managers (IMs) remains favourable, driven by improved global equity markets that have increased assets under management (AUM) and attracted investor flows. This has resulted in healthy fee revenue generation, improved investment performance and stable operating margins, supported by continued cost discipline. Leverage has generally declined, and in some cases been reduced to zero, driven by improved cash flow generation and debt repayment. Many traditional IMs have taken advantage of favourable capital markets and low interest rates to refinance debt at attractive spreads, which should improve interest coverage. Liquidity remains strong, with most traditional IMs operating at or near negative net debt position. These positive trends are tempered by the cyclical nature of market value appreciation, potential performance and reputational risks in a rising interest rate environment and regulatory uncertainty surrounding IMs and/or their funds. KEY RATING DRIVERS - IDRs The affirmations of AAM's IDRs reflect its strong profitability, low leverage and its profile and track record as a traditional asset manager. The ratings benefit from the high cash generation typical of AAM's industry but are also exposed to the risks common to the business model, notably the sensitivity of AUM, and consequently earnings, to market dynamics, and operational and reputational risks. Fitch upgraded AAM's IDR to 'A' from 'A-' on 8 April 2014, due to the improved product and geographical diversification that the Scottish Widows Investment Partnership Group Limited (SWIP) acquisition brought to AAM (see 'Fitch Upgrades Aberdeen Asset Management to 'A'; Outlook Stable' at www.fitchratings.com). AAM has grown into its present global position via successfully integrated acquisitions, which have contributed to higher earnings and increased geographic and product diversification. AAM's ratings consider the increased portfolio diversification arising from the SWIP acquisition, particularly from the addition of quantitative equities and fixed income portfolio. Furthermore, SWIP's strong UK and developed market focus mitigates AAM's previous concentrations to emerging markets and Asia Pacific. The ratings also consider the integration challenges, margin pressures and potential reduction of existing AUM in light of the comparatively large SWIP acquisition. Fitch considers that cost savings from the elimination of duplicated activities will contribute to improving financial performance although this will be offset by integration costs during FY14 and FY15. Operating and fee margins are tighter in the acquired business, which will weaken the combined group's margin and efficiency metrics in the short to medium term. RATING SENSITIVITIES - IDRs Upward rating momentum could be driven by successful execution of the SWIP integration process, continued increases in AUM, further improvements in client, product and geographical concentrations, improved net cash balances and earnings, and consistently low leverage. The ratings could be downgraded if there is a substantial and sustained increase in leverage, material reputational damage, a sustained deterioration of fund performance or significant AUM net outflows. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES AAM's USD500m perpetual cumulative subordinated instruments receive 50% equity credit and are rated three notches below AAM's IDR in accordance with Fitch's criteria for the "Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis" dated 23 December 2013. A hybrid instrument with easily activated going-concern loss absorption would normally be rated at least three notches lower than the issuer's Long-term IDR. The rating actions are as follows: Long-Term IDR affirmed at 'A'; Outlook Stable Short-Term IDR affirmed at 'F1'' Subordinated perpetual cumulative notes affirmed at 'BBB' Contacts: Primary Analyst Denzil De Bie Director +44 20 3530 1592 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Alan Milne Associate Director +44 20 3530 1491 Committee Chairperson Nathan Flanders Managing Director +1 212 908 0827 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 and Investment Manager and Alternative Funds Criteria, dated 12 December 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Investment Manager and Alternative Funds 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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