Fitch Affirms Redecard's IDR at 'BBB+'; Outlook Stable

  Fitch Affirms Redecard's IDR at 'BBB+'; Outlook Stable

Business Wire

RIO DE JANEIRO -- April 3, 2014

Fitch Ratings has affirmed Redecard S.A.'s ratings as follows:

--Foreign and Local currency Issuer Default Ratings (IDR) at 'BBB+';

--Long-term national scale rating at 'AAA(bra)';

--Long-term national scale rating of its first debentures issuance of BRL1.5
billion, due in 2017, at 'AAA(bra)'.

The Rating Outlook for the corporate ratings is Stable.

KEY RATING DRIVERS

Redecard's investment grade ratings reflect the company's strong position in
the Brazilian card payment industry and the strength and resilience of its
business model supported by the growing and predictable revenue stream from a
diversified base of affiliated merchants. Redecard has a solid capital
structure and liquidity, and the ability to generate strong cash flow in its
business.

Redecard's ratings also incorporate the low counterparty risks associated with
the Brazilian banking system, as more than 95% of credit and debit
transactions are settled with investment grade banks. The support and strength
of its controlling shareholder, Itau Unibanco Holding S.A. (IUH) (rated
'AAA(bra)' National Scale; local currency IDR 'A-' and foreign currency IDR
'BBB+' by Fitch), is also incorporated in the ratings.

Strong Position in the Brazilian Card Payment Industry

Redecard is the second largest merchant-acquiring and payment-processing
company in Brazil, with relevant participation in volume of credit and debit
cards transactions. The industry is extremely consolidated and the two largest
players, Redecard and Cielo S.A., account for more than 90% of the market. The
Brazilian card payment industry's high barriers to entry support Redecard's
strong market position, which is viewed as sustainable in the medium term,
despite the highly competitive environment.

Redecard has an important competitive advantage, as the company relies on the
strong relationship and distribution network of IUH, Banco Safra S.A. and
Caixa Economica Federal. Together these banks have approximately 7,294
branches. They account for about 32% of the Brazilian banking system.
Redecard's affiliation with these leading banks gives it access to their broad
customer base to acquire merchants accounts and creates high barriers to
entry. The penetration of credit and debit cards in Brazil is still low and
should continue to grow in the next few years, which supports the company's
long-term growth prospects.

Low Risk of Credit Losses

Redecard currently has virtually no direct credit exposure to cardholders
since the card-issuing bank guarantees cardholder payment. The company is,
however, exposed to card-issuing bank defaults on a payment settlement for
Visa transactions. The licensing agreement with Mastercard mitigates this
risk, as it guarantees the settlement of all transactions. The risk associated
with Visa transactions is mitigated by the fact that more than 95% of the
volume of credit and debit transactions is concentrated with investment grade
rated banks. For non-investment grade banks, Redecard's risk management policy
requires the card-issuing bank to pledge collateral.

The company is exposed to merchants that accept cards processed by Redecard in
terms of their performance, payment of the rental of the equipment, fraud, and
losses due to customer charge-backs. These losses have been historically low
and not representative to the company's net revenues.

Solid Liquidity and Robust Cash Flow

Liquidity risk is low. Redecard's strategy to preserve low cash position is
counterbalanced by company's strong financial flexibility to quickly build up
liquidity from its strong operational cash flow, if necessary. As of Dec. 31,
2013, Redecard had cash and market securities of BRL186 million. Redecard
continued to generate robust cash flow and reported BRL3.2 billion in EBITDA,
including financial income derived from the discounting and pre-payment of its
receivables to its merchants, and BRL3.2 billion in cash flow from operations
(CFFO). Redecard distributed dividends of BRL1.5 billion and invested BRL250
million in 2013, resulting in a strong free cash flow (FCF) of BRL1.4 billion
in the period that was used to prepay its first debentures issuance.

Recurring and Growing Revenues

Redecard's business model is stable, with low correlation to economic cycles.
The revenue growth is generally driven by the increasing migration to an
electronic payment system from a cash system and increasing card payment
penetration in Brazil. Net revenues was BRL4.1 billion in 2013, compared to
BRL3.5 billion reported in 2012, and do not include financial income from
pre-payment of payables to merchants.

Credit transactions remained the company's main product and represented about
50% of total revenues, followed by POS equipment rental (28%), debit
transactions (19%) and others (3%). Financial income from the discounting and
pre-payment of its receivables to its merchants of BRL772 million also
contributed to the results. Redecard's operating margins remained high and
stable in the last couple of years, even pressured by strong competition in
the Brazilian card payment industry. In 2013, adjusted EBITDA margin was
65.8%.

Strong Capital Structure

Redecard has strong credit metrics. As of Dec. 31, 2013, Redecard had BRL427
million of total debt. This debt consists primarily of BRL359 million Finame
loans used to finance the purchase of POS equipment. The company's net debt to
adjusted EBITDA ratio of 0.1x is low and is not expected to materially change
over the next few years.

Manageable Regulatory Risk

In October 2013, Brazil's Central Bank was named as the regulator of the
payment processing industry, approved under the law 12,865/2013. Some of the
key changes expected by Fitch in the near term include the end of the
exclusivity agreements of smaller brands like Elo, American Express, Hiper and
food vouchers. As new volume of transactions will be captured and existing
volume of transactions will be shared with the market, the impact on the
company's cash flow generation capacity should be limited.

RATING SENSITIVITIES

Ratings upgrades are not likely in the short to medium term. Redecard's IDRs
are already positioned at the same level of Brazil's country ceiling of
'BBB+'.

Ratings downgrades would most likely be driven by a combination of the
following factors: an increase in the volume of credit and debit transactions
with non-investment grade banks without collateral being pledged by the
card-issuing bank or not guaranteed by Mastercard; by a weakening credit
profile of the main banks that operate with Redecard; and/or by a significant
loss due to fraud and charge-backs. Factors that could lead to consideration
of a downgrade also include the downgrade of its controlling shareholder, IUH,
due to the company's high exposure to the bank; and the effects on the
business caused by the competitive environment and/or significant changes in
the regulatory risk, that result in EBITDA margins below 50% and negative FCF
for consecutive periods.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

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http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826144

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Contact:

Fitch Ratings
Primary Analyst
Fernanda Rezende, +55-21-4503-2619
Director
Fitch Ratings Brasil Ltda.
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20010-010
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