Credito Real, S.A.B. de C.V., SOFOM, E.N.R.'s Proposed Senior Unsecured Notes Rated 'BB+'

MEXICO CITY (S&P Global Ratings) Sept. 13, 2019--S&P Global Ratings assigned its 'BB+' issue-level rating to Credito Real S.A.B. SOFOM, E.N.R.'s (Credito Real; global scale: BB+/Negative/--; national scale: mxA+/Negative/mxA-1) proposed senior unsecured notes.
Credito Real plans to issue around €400 million-€450 million. Nevertheless, it has authorization to issue up to €500 million with a tenor between five and seven years.
The 'BB+' rating on the new notes is at the same level as the long-term global scale issuer credit rating on Credito Real. This considers that Credito Real's secured debt represented less than 15% of adjusted assets as of June 2019, and its unencumbered assets fully cover unsecured debt. The new notes will rank equally in right of payment with all of the lender's existing and future senior unsecured debt. We expect Credito Real to use the proceeds for refinancing existing senior notes--about $300 million due 2023--and the remainder for working capital needs.
The rating on the notes incorporates a hedge against currency exchange fluctuations on the total amount of the principal and interest during the issuance term. We expect Credito Real to complete the hedge within the next 60 days.
Our view of Credito Real's funding and liquidity remains the same. We expect the issuance will slightly improve the lender´s debt maturity profile. On the other hand, we believe that Credito Real's funding structure will remain at similar levels after this issuance, because market debt would represent about 69% (66% before the issuance) of the total funding base. The remainder of its funding base will rely on credit facilities from banks (31%).
In our view, Credito Real's liquidity is sufficient to fund daily operations, and in our view, it has the ability to raise funds, if needed, as its track record of market access demonstrates. In our base-case and stress scenarios, Credito Real's cash flow analysis remains positive, and we expect the lender to cover its liquidity needs on a monthly basis for more than 12 months, even in the absence of market funding.
The ratings on Credito Real incorporate its sound market share in Mexico's nonbank payroll lending segment that translates into a steady growth in operating revenue and business stability. In addition, we incorporate its still solid capitalization--thanks to rising internal capital generation--despite the share buyback program for up to $100 million that the lender announced in October 2018. This results in an expected risk-adjusted capital (RAC) ratio of 11.8% on average for 2019 and 2020. Although credit losses have increased since Credito Real acquired Instacredit in 2016, we expect them to diminish gradually.
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