OREANDA-NEWS. August 03, 2015. Fitch Ratings has placed LeasePlan Corporation NV's (LeasePlan) Long-term Issuer Default Rating (IDR), Viability Rating (VR) and senior debt rating on Rating Watch Negative. The rating action follows the recent announcement of an agreement for LeasePlan's sale by current 100% shareholder Global Mobility Holding BV (a joint venture between Volkswagen Aktiengesellschaft and Fleet Investments BV) to a consortium of long-term investors. A full list of rating actions is available at the end of this rating action commentary.

LeasePlan's IDRs and senior debt ratings are driven by the company's intrinsic creditworthiness, as expressed in its VR. The VR continues to reflect LeasePlan's global market-leading vehicle leasing franchise, solid capitalisation, prudent liquidity and strong risk management. The VR also recognises a fairly large exposure to residual value risk, but Fitch believes this is well-managed by LeasePlan within a resilient business model.

KEY RATING DRIVERS

IDRS, VR AND SENIOR DEBT
The Rating Watch Negative reflects the announcement that of the total EUR3.7bn transaction value EUR480m will be met by a mandatory convertible note and EUR1.55bn by a cash-pay debt facility, introducing a new debt service requirement to the group ownership structure. Fitch notes that none of the debt raised by the consortium is to be borrowed by the company itself, and that it would not be directly responsible for the repayment of such debt. Holding a Dutch banking licence, LeasePlan also acts under the supervision of the Dutch Central Bank (DNB), whose approval is required for all dividend distributions.

Nonetheless, if the servicing of acquisition-related debt is to be funded by upstreaming dividends from LeasePlan's operating companies, Fitch considers this may reduce LeasePlan's internal capital generation and thereby its financial flexibility.

As the world's largest fleet and vehicle management company, LeasePlan holds leading market positions in most of its countries of operation. This geographic diversification counterbalances the group's monoline business model and renders its performance less susceptible to economic downturn in a certain market. Recent financial performance has remained strong.

LeasePlan's banking status is unusual among leasing companies and gives it potential access to European Central Bank (ECB) refinancing operations, if needed. It has also allowed the company to achieve a more diversified funding profile than peers through the gathering of retail savings, which has reduced reliance on wholesale funding in recent years. Most of these are eligible to the Dutch deposit guarantee scheme, which supports the retail deposits' stability, and liquidity and refinancing risk are managed prudently.

Reported regulatory risk-weighted capital ratios are sound, though LeasePlan's debt-to-tangible equity leverage is higher than leasing peers. The group has a fairly large exposure to residual value risk via the large proportion of operating leases in its portfolio. While residual value risk cannot be entirely eliminated, as it depends on external factors such as second-hand car prices, efficient risk management has allowed the group to avoid material losses historically.

RATING SENSITIVITIES

IDRS, VR AND SENIOR DEBT

The Rating Watch Negative is expected to be resolved when the acquiring consortium receives necessary regulatory approvals, expected in 4Q15. If the transaction proceeds, either as currently disclosed or on terms with a greater level of debt, this could lead to a downgrade. Any downgrade of LeasePlan's ratings resulting from the acquisition is likely to be limited to one notch, in the absence of material change to the group's business and financial strategy.

Negative rating pressure could also develop from a material reduction in the group's capital ratios, pressure on residual values via depression in the second-hand car market or a perceived diminishing of LeasePlan's cautious approach to liquidity management.

Should the acquisition for any reason not proceed, or do so on terms which could reduce materially the debt to be serviced from LeasePlan's dividend flow, Fitch may affirm the group's ratings at their current levels. Ratings could also benefit post-acquisition from demonstration of the maintenance of similar capitalisation and liquidity metrics to those shown currently.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING

LeasePlan's Support Rating of '5' indicates Fitch's view that institutional support from its shareholders, if ever required, may be possible but cannot be relied upon in its ratings. Fitch currently does not envisage any changes to LeasePlan's Support Rating under either the current or the proposed shareholder structure.

The rating actions are as follows:
Long-term IDR: 'A-'; placed on Rating Watch Negative
Short-term IDR: affirmed at 'F2'
Viability Rating: 'a-'; placed on Rating Watch Negative
Support Rating: affirmed at '5'
Senior unsecured debt Long-term Rating: 'A-'; placed on Rating Watch Negative
Senior unsecured debt/commercial paper Short-term rating: affirmed at 'F2'