Fitch Assigns 'B+' LT IDR to Prestaciones Finmart; Expects to Rate Unsecured
MONTERREY, Mexico -- March 11, 2013
Fitch Ratings has assigned foreign and local currency long-term Issuer Default
Ratings (IDRs) of 'B+' and short-term IDRs of 'B' to Mexico's Prestaciones
Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. (Finmart). National scale ratings of
'BBB+(mex)' and 'F2(mex)' were also assigned. The long-term Rating Outlook is
Stable. Fitch also expects to rate an upcoming issue of medium-term Reg S
bonds 'B+/RR4'. A full list of rating actions follows at the end of this
KEY RATING DRIVERS
All of Finmart's ratings are driven by its core profile. Thus, the ratings
reflect its favorable business model, granting personal loans to stable public
sector employees with direct debit to their payrolls. However, the ratings
also factor in the relatively high operational, political, and reputational
risks associated with this sector, as well the exposure to fierce competition
and the potential for rapidly changing market dynamics.
Finmart's ratings also consider its gradually growing franchise and overall
competitive position, sound operating and risk management practices, and
improving performance and capital adequacy metrics, although these have been
somewhat volatile in recent years. More important, Finmart's ratings are
constrained by its relatively expensive, concentrated funding base, which is
faced with burdensome terms and conditions.
The expected rating on the proposed notes reflects Fitch's opinion that, upon
completion of such issue, FinMart would have enough available earning assets
to ensure an average recovery for bondholders in the case of liquidation. This
underpins the Recovery Rating of 'RR4' and the alignment of the notes' rating
with Finmart's IDR.
Finmart's ratings could be eventually upgraded if the flexibility of funding
is materially improved, with more diversified sources, an increasing portion
of more stable financing alternatives, and a material shift in the funding
mix, with the majority of this coming from unsecured lending. Also, sustained
profitability and capital adequacy metrics might be positive ratings factors.
In turn, Finmart's ratings could be affected if the company is not able to
sustain the performance, capital, and asset quality metrics recorded at
end-2012. The ratings could be negatively affected by operating return on
assets (ROA) below 2%, a capital-to-assets ratio lower than 20%, and/or
impairment and charge-off ratios above 7% and 4%, respectively.
The rating of the proposed notes will likely remain aligned with Finmart's
IDRs. However, it could be downgraded to a level below the IDR if Finmart does
not improve the availability of unpledged earnings assets materially after
completion of the issuance.
Finmart, established in 2003, grants personal loans secured by payroll
withholdings to unionized public sector employees in Mexico. These employees,
federal, state, and municipal governments, often have limited access to
financing products, given their relatively lower income and limited credit
track record. However, public sector unionized jobs are usually stable and
have low turnover ratios. Finmart offers medium-term loans that are repaid in
In early 2012, EzCorp Inc. (NASDAQ: EZPW), a consumer finance company based in
Austin, Texas, acquired 60% of Finmart through a capital infusion of USD12
million which, coupled with new capital contributed by original shareholders,
increased Finmart's capital base by USD20 million. These resources enabled
Finmart to expand its loan growth capacity, implement a strategy to improve
its funding structure, and clean up its loan portfolio. As a result, capital
metrics and franchise improved materially, although profitability and asset
quality were somewhat affected, but these have been gradually improving since
For many years, Finmart's funding mix has been relatively expensive and
concentrated, with burdensome terms and conditions. Tenors, interest rates,
and required collateral have been improving steadily and materially, which has
boosted recurring earnings and improved the entity's financial flexibility.
Nonetheless, funding remains concentrated in wholesale sources, while the
company remains challenged to further improve the conditions of its credit
facilities while reducing its reliance on collateralized funding.
Fitch has assigned the following ratings:
--Long-term foreign and local currency IDRs 'B+';
--Short-term foreign and local currency IDRs 'B';
--Upcoming issue of MXN750 million 3-year Reg S bonds 'B+/RR4(EXP)';
--National-scale long-term rating 'BBB+(mex)';
--National-scale short-term rating 'F2(mex)'.
The Rating Outlook is Stable.
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 Related Research:
-- 'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
-- 'Finance and Leasing Companies Criteria' (Dec. 11, 2012);
-- 'Recovery Ratings for Financial Institutions' (Aug. 15, 2012);
-- 'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research
Recovery Ratings for Financial Institutions
Finance and Leasing Companies Criteria
Global Financial Institutions Rating Criteria
National Ratings Criteria
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Fitch Mexico SA de CV
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