Rating Action: Moody's assigns Ba2 rating to PRA's $300 million senior unsecured notes
Global Credit Research - 11 Aug 2020
London, 11 August 2020 -- Moody's Investors Service ("Moody's") assigned a Ba1 corporate family rating (CFR) to PRA Group, INC. ("PRA"), a publicly-listed debt purchaser with operations in the Americas, Europe and Australia. Moody's also assigned a Ba2 unsecured debt rating to PRA's proposed $300 million senior unsecured notes. The outlook on PRA is stable.
RATINGS RATIONALE
The Ba1 corporate family rating assigned to PRA reflects the company's: 1) solid profitability and very strong interest coverage; 2) relatively low Debt/EBITDA leverage, reflecting its historically conservative financial policy; 3) strong capitalisation, indicative of disciplined growth strategy; 4) relatively long track record, with more than 20 years of operating performance; and 5) large, globally diversified franchise. At the same time, the recommendation reflects PRA's: 6) evolving liquidity and funding profile, with significant reliance on credit facilities; 7) potential weakening in the company's profitability and increase in earnings volatility, due to the ongoing coronavirus crisis; as well as 8) current operating environment for debt purchasers, reflecting high regulatory risk inherent to the debt collection business.
The Ba2 rating that Moody's assigned to PRA's senior unsecured notes reflects the application of Moody's Loss Given Default for Speculative-Grade Companies methodology and their priorities of claims and asset coverage in the company's current liability structure.
The outlook on PRA is stable, reflecting Moody's expectations that the company's financial performance in the next 12-18 months will remain consistent with its historical performance.
In line with Moody's general view for the debt purchasing sector, PRA has a low exposure to environmental risks. In terms of social considerations, Moody's view PRA as moderately exposed, given that its business could be impacted by the coronavirus crisis, which Moody's views as social risk under Moody's environmental, social and governance (ESG) framework, given its substantial implications for public health and safety. Similar to other debt purchasers, customer relations represent important social considerations to PRA, given that institutions that sell both performing and non-performing debt can be highly regulated (e.g. banks) and rely on the companies' handling of customer data and privacy. Changes to regulatory rules and legal practices within a market could also affect the recovery processes and collection curves. Governance is highly relevant for PRA, as it is to all participants in the finance company sector. While Moody's does not have any particular concern around PRA's corporate governance practices, corporate governance remains a key credit consideration and requires ongoing monitoring, as is the case for all financial institutions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
PRA's CFR could be upgraded if the company: 1) continues demonstrate strong financial performance, with consistently solid profitability and improved cash flows, while maintaining low leverage and solid capitalisation; 2) improves its liquidity and funding profile, as evidenced by reduced reliance on credit facilities and laddering of debt maturities; 3) diversifies its geographic mix, which would reduce its exposure to the regulatory risk in a given region; and 4) diversifies its product offering mix to include revenue sources from capital-light fee-based businesses; and 5) if Moody's deems that the operating environment for debt purchasers has improved.
PRA's CFR could be downgraded in case of: 1) meaningful and sustained deterioration in the company's profitability and cash flows; 2) increase in leverage, on a sustained basis, to above 3x Debt/EBITDA leverage; 3) substantial erosion in capitalisation; 4) failure to maintain adequate committed revolving borrowing availability, or if liquidity otherwise materially weakens; 5) regulatory development in a country with significant business exposure that would as a result significantly impact the company's franchise.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Anna Sherbakova Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Carola Schuler MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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