OREANDA-NEWS. Fitch Ratings has affirmed Mizzen Mezzco Limited UK's (MML) Long-term Issuer Default Rating (IDR) 'B+'. The Outlook on the Long-term IDR is Stable. The long-term rating of the GBP200m senior notes issued by its indirect 100%-held subsidiary, Mizzen Bondco Limited, is affirmed at 'B-'/'RR6'.

KEY RATING DRIVERS - IDR

MML, a holding company, is the ultimate 100%-parent of Premium Credit Limited (PCL), a leading provider of third-party insurance premium finance. The Long-term IDR of MML is based on Fitch's assessment of the overall credit risk profile of PCL, its only operating entity, and the ability of this operating entity to upstream dividends to its shareholder. As this dividend flow is the only source of funds available to service MML's and its subsidiary's Mizzen Bondco's debt obligations, our rating also considers the structural subordination of these entities' debt to all indebtedness and other senior obligations of PCL.

Fitch's assessment of PCL's creditworthiness considers PCL's 25 years of experience in the premium finance sector as well as its strong market position, which has benefited over the last decade from sector consolidation and high barriers to entry. PCL's strong competitive advantage includes, among other factors, the long-term stable nature of its intermediary relationships and niche lending markets.

Asset quality at PCL is robust and underpinned by the strong risk management of assets and subsequent low level of loan losses. The short-term nature of its loans supports the company's flexibility in dealing with problem assets while its strong recovery and collection processes help to narrow actual losses.

Earnings are stable and reflect a high level of repetitive business, with low levels of attrition and low loan impairment charges. Nonetheless, Fitch views PCL's earnings as undiversified and highly dependent on lending volumes, which, in turn is highly dependent on a small number of intermediaries. Costs are also high, reflecting its business model.

The company is highly leveraged and, because of the high level of dividends up-streamed to its parent, internal capital generation is weak. This places the company at risk from any large unexpected losses and is a factor of higher importance in assessing the overall creditworthiness of the company. Furthermore, it relies on just two sources of wholesale funds, rendering its overall funding profile undiversified and subject to investor confidence. Maturities are also lumpy, with a securitisation facility due to mature at end-2017 and all other senior debt in 2021. Again, Fitch views the weakness of the company's funding profile as a factor of higher importance. High leverage and high refinancing risk are overall negative rating drivers in our assessment of PCL's creditworthiness.

RATING SENSITIVITIES - IDR

As MML's Long-term IDR is notched off our assessment of the creditworthiness of PCL, it is mainly sensitive to a change in our view of PCL's creditworthiness. Positive rating drivers include a reduction in leverage as well as improved diversification of funding sources and reduced refinancing risk. Negative rating drivers include increased risk appetite, particularly if the company materially grows its non-recourse book, which could lead to a deterioration of asset quality.

Furthermore, MML's Long-term IDR would be sensitive to an increase in holding company double leverage to levels above 120% (end-2014: 95%), which is currently not our base case, or to constraints on the ability to upstream dividends from PCL to the holding company.

KEY RATING DRIVERS AND SENSITIVITIES - Mizzen Bondco's Senior Debt

The senior notes are rated two notches below MML's 'B+' Long-term IDR, reflecting the limited recovery for senior creditors as indicated by the 'RR6' Recovery Rating. The low recovery expectations are mainly driven by their deep subordination to the securitisation facility, which encumbers the majority of receivables.

The securities' rating is primarily sensitive to any movement in their anchor rating, MML's Long-term IDR, and to potential changes to recovery prospects.