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Fitch Affirms CFG Holdings Ltd's IDR at "B-"

20 juli 2012 from Business Wire

NEW YORK - (BUSINESS WIRE) - Fitch Ratings has affirmed the long-term Issuer Default

Rating (IDR) for CFG Holdings Ltd. (CFG) at "B-". The Rating Outlook is Stable. A full listof ratings affirmed follows the end of this press release.

CFG's IDRs are limited by heightened refinancing risk due to the concentrated and short-term

nature of its funding (CFG's largest weakness), and the burden of intangibles on its overall

profitability. However, CFG has healthy earnings and controlled risks on the right hand of the

balance sheet due to adequate asset quality, sound recurring core profitability (excluding the

amortization of intangibles), adequate leverage, and diversified target markets: Aruba,

Curacao, Bonaire, Trinidad & Tobago, Saint Maarten and Panama.

The Stable Outlook reflects the expectation that asset quality and recurring profitability will

remain in line with current trends, while CFG's capital levels will benefit from itsconservative growth strategy and dividend retention policies. A failure to refinance the current

bank facility and reduce the encumbered levels of its assets, and/or a sudden deterioration on

its asset quality metrics will negatively affect the ratings. More specifically, if credit costs

suddenly increase to levels above 30% of revenues and or operating expenses consume more

than 75% of revenues, CFG rating may be downgraded; a costly refinancing of its sole

funding source may also trigger a rating review if the company's ROAA falls below 1%.

Funding is a structural weakness of CFG, despite its cash flow generation. The current

funding structure, a one-year secured bank facility up for renewal in March 2013, is not

aligned with the average tenor of its assets (around three years) and encumbers a significant

portion of productive assets (around 70% of total gross receivables).

A recent renewal of such financing implied a moderate increase of the funding cost which in

turn was just partially compensated by the slight increase on the average yield of the

receivable's portfolio.

Considering its niche market, unsecured consumer loans, CFG's lending policies are deemed

adequate and have allowed the entity to preserve and even improve its asset quality in the last

five years, despite the changes on the operating environment. Even when the average level of

impaired loans is relevant (around 11% for 60 days overdue and 4.6% for 90 days overdue as

of December 2011); net charge off have posted a sustained declining trend since 2009, aidedby increasing recoveries and lower gross charge-off (average Net Charge off ratio of 5% since

2008; and 3.9% during FY11). CFG's asset quality metrics are supported by its efficient

collection process (payroll deduction and automatic charges in bank accounts, as opposed to

regular cash payments on branches) and significant fine tuning completed on the credit risk

and collections department in Panama, their largest individual market. Asset quality trends

should mirror recent historic averages based on CFG's conservative lending approach and

excluding any significant deterioration on the operating environment.

Recurring profitability has increased in the last two years, after the amortization charges of

the goodwill and intangibles from previous acquisition eased the burden. CFG's profitability

levels have also benefited from a slight increase on the average yield of its receivablesportfolio and lower loan loss provisions. However, they are still limited by the initial costs


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derived from the moderate expansion of the company's branch network in some of the key

countries where it operates and a recent increase on the funding cost after the renewal of its

sole bank line in 2011. With an ROAA slightly above 4% for FY11, CFG's profitability ratio

is considered sound although, it still compares below the average of other unsecured lenders

in Latin America. Given the stability of its asset quality ratios, prudent growth strategy and

controlled overhead, CFG's recurring profitability should remain adequate, although overallprofitability may be affected if further impairments of the intangibles should be required.

Despite the ability to reduce its financial debt by 15% during the 2008-2010 period, CFG's

current cash flow is considered weak given the short-term nature of the current bank facility

that funds its operations. In addition, the current funding limitations may limit potential

expansion of the company in markets where unsecured financing may still be vigorous; the

current business plan is mostly based on the ability of the company to use the excess cash

flow from its operations in order to expand its receivables portfolio.

CFG's capital levels are sound compared to the inherent risk of its business model, even

considering the significant weight of the goodwill and intangibles (37% of total equity as ofDecember 2011), with a tangible equity to managed assets ratio of 24%. Financial Leverage

(adjusted by intangibles) stands at 1.98 times (decreasing from its peak in 2008 due earnings

retention and the amortization of such intangibles), in line with other entities of similar

profile, although the concentrated nature of the financial debt negatively affect this measure.

CFG is a leading non-bank consumer finance company with established business in Trinidad

& Tobago, Curacao, Aruba, Bonaire, Saint Maarten and Panama. CFG was incorporated in

2006, as a result of the acquisition of Wells Fargo Financial's Latin American Consumer

Finance Operations by Irving Place Capital, a private equity company.

Fitch affirmed the following ratings on CFG:

- Long-term Foreign Currency IDR at "B-"; Outlook Stable;

- Short-term Foreign Currency IDR at "B".

Additional information is available at "www.fitchratings.com". The ratings above were

solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the

provision of the ratings.

Applicable Criteria and Available Research:

- "Global Financial Institutions Rating Criteria" (Aug 16, 2011);

- "Finance and Lease Companies Criteria" (Dec 12, 2011).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Finance and Leasing Companies Criteria


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http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659834

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