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Fitch Affirms Jerrold Holdings at 'B+', Stable Outlook
June 6, 2014 / 2:01 PM / 4 years ago

Fitch Affirms Jerrold Holdings at 'B+', Stable Outlook

(The following statement was released by the rating agency) LONDON, June 06 (Fitch) Fitch Ratings has affirmed UK-based financial services company Jerrold Holdings Limited's (JH) Long-term Issuer Default Rating (IDR) at 'B+' and Short-term IDR at 'B'. The Outlook on the Long-term IDR is Stable. The agency has also affirmed the rating of the senior unsecured notes issued by Jerrold FinCo and guaranteed by JH at 'B+'/'RR4'. KEY RATING DRIVERS JH's ratings primarily reflect significant risks arising from a fairly undiversified and high asset risk business model, and the company's reliance on limited funding sources. Other rating drivers include the company's currently modest gearing, its strong capital generation capacity and robust risk management. Fitch considers the high arrears present in JH's loan book to be a feature of its business model, the risk of which is monitored and managed carefully on an individual loan basis, with strong collection and recovery policies in place. Non-performing loans and arrears that are more than 90 days overdue represented 24% of total loans at end-March 2014 which, while significantly lower than at end-March 2013 (31%), remain high. Actual losses are low, as the company ensures that it has a solid level of security (mostly residential properties - 85% of total security - and commercial properties - 15%, with low loan-to-values) backing its loans. JH generates fairly stable and strong profits, although underlying pre-tax profit was under pressure in 2009-2013 from higher bad debt provisions (2010) and falling loan volumes (2011, 2012 and 9M13). Loan volumes are growing rapidly as a result of the new funds raised in September 2013 and the refinancing and expansion of its securitisation programme, which Fitch expects to support a rise in profits. Risk is well remunerated and the wide margins it is able to generate are generally not affected by movements in base rates. Nonetheless, revenues rely solely on the generation of new loans. The company has improved its compliance and risk controls. A number of measures have been put in place to reduce reliance on key individuals and to ensure risk appetite remains in line with established plans and not to the detriment of debt holders. Corporate governance currently acts as a constraint on the ratings but Fitch expects this to improve over time. Exposure to regulation is increasing but remains limited. The recently issued senior bond has improved the diversification and, together with the recently refinanced securitisation structure, also the maturity profile of funding and increased funding headroom. However, Fitch considers the company's overall funding and liquidity profile as weak and a negative rating driver. The company is not subject to full regulatory capital requirements but gearing has so far been low. This has been supported in recent years by a decision not to pay out dividends. RATING SENSITIVITIES Upside potential to the IDRs is limited by the current weakness of the company's funding profile. A materially more diversified funding structure may contribute to a rating upgrade, although a company with a lack of product diversification, sole reliance on wholesale funding and modest business scale would generally be rated firmly below investment grade. Ratings could also benefit from the removal of a large number of non-performing development loans from its balance sheet and from larger funding headroom on a sustained basis. Ratings would be negatively affected by a material increase in gearing (particularly if debt is increased significantly to fund further growth, or from dividend payments); or if Fitch considers the expected rapid loan growth over the next couple of years would weaken the company's risk profile significantly; or if profitability suffers from greater conduct and compliance costs or competitive pressures. KEY RATING DRIVERS AND SENSITIVITIES: SENIOR NOTES The senior unsecured notes are rated in line with JH's Long-term IDR, reflecting 'average recoveries' indicated by the 'RR4' Recovery Rating. They are primarily sensitive to any movement in their anchor rating, JH's Long-term IDR, but could also be sensitive to any change in Fitch's recovery assumptions in respect of JH's assets. Contact: Primary Analyst Claudia Nelson Senior Director Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Maria Rivas Director +44 20 3530 1163 Committee Chairperson Erwin Van Lumich Managing Director +34 93 323 8403 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available on Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014, are available at 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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