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Fitch: Europlan's Ratings Unaffected by Planned Reorganisation
November 29, 2016 / 3:56 PM / a year ago

Fitch: Europlan's Ratings Unaffected by Planned Reorganisation

(The following statement was released by the rating agency) LONDON/MOSCOW, November 29 (Fitch) Fitch Ratings says the recent announcement by Russian leasing company Europlan JSC (BB-/Stable) of its planned reorganisation has no immediate impact on the company's ratings. In the first stage of the reorganisation, Europlan will become the owner of the other non-banking financial assets of its main shareholder, the Safmar holding (formally known as B&N group). Safmar will contribute its 49% stake in VSK Insurance (BB-/Stable) and a 100% stake in Safmar pension fund to Europlan as new equity, and management expects Europlan to attract RUB15bn of equity in cash via a secondary public offering. In the second stage of the reorganisation, Europlan will transfer its leasing business to a new subsidiary (new leaseco). Fitch expects all the financial liabilities of Europlan and all of its leasing assets (but not necessarily all of its cash and liquid assets) to be transferred to the new leaseco. Management expects the reorganisation to be completed by mid-2017. Fitch is of the opinion that the credit profile of the new leaseco, to which Europlan's current creditors will become exposed, should not be materially different to the current credit profile of Europlan. Europlan's 'BB-' Long-Term Issuer Default Ratings (IDR) and senior debt rating reflect the company's significant franchise in the Russian auto leasing sector, so far conservative management and risk appetite, and sound financial metrics. Performance remained strong in 9M16 amid flattish business volumes. At the same time, the ratings also reflect the high-risk Russian operating environment and contagion risks resulting from the recent acquisition of Europlan by the B&N group. In May 2016, Fitch downgraded Europlan by one notch to 'BB-' to reflect these contagion risks. While Fitch's base case expectation is that the reorganisation will be neutral for Europlan's creditors, moderate risks exist in relation to the leverage of the new leaseco. Fitch understands from management that they have not yet decided what proportion of Europlan's liquid assets will be transferred to the new leaseco. Given this, and also some execution risk relating to the planned cash equity injection, Fitch is not able to forecast the leverage of the new leaseco. At end-3Q16, Europlan's debt/equity ratio was a strong 1.5x (equity adjusted down for a RUB631m receivable from the shareholder). Management has informed Fitch that they view a debt/equity ratio of around 4x as comfortable, and Fitch would view such leverage as still being consistent with the 'BB-' rating, providing there are no other material negative changes to the credit profile. However, a leverage ratio closer to 6x, which the company has covenanted in some of its bilateral debt agreements, could put downward pressure on ratings. Repayment of part of Europlan's existing debt is possible if this is accelerated as a result of the reorganisation, although Fitch views it as unlikely that debt acceleration, if any, will put significant pressure on the company's liquidity. This is due to the likely strong coverage of the bank's third-part liabilities by liquid assets at the time of the second stage of the reorganisation. At end-3Q16, Europlan held RUB5.5bn of liquid assets, and these could increase by a further RUB15bn as a result of the equity injection. Against this, the company had RUB21bn of liabilities at end-3Q16, of which approximately RUB5bn were bonds held by Safmar's pension funds and RUB16bn was owed to third parties. Regarding the latter, Fitch understands from management that the company has already reached provisional agreement with some bank creditors on non-acceleration (i.e. transfer to the new leaseco) of debt. Contact: Aslan Tavitov Director +44 20 3530 1788 Fitch Ratings Limited 30 North Colonnade London E14 5GN Ruslan Bulatov Associate Director +7 495 956 9982 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: Additional information is available on 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 WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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