Sept 5 (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.