{"id":42448,"date":"2021-08-11T20:31:11","date_gmt":"2021-08-12T01:31:11","guid":{"rendered":"http:\/\/prefblog.com\/?p=42448"},"modified":"2021-08-11T20:31:11","modified_gmt":"2021-08-12T01:31:11","slug":"ecn-on-review-negative-by-dbrs","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=42448","title":{"rendered":"ECN On Review-Negative by DBRS"},"content":{"rendered":"

DBRS has announced<\/a> that it:<\/p>\n

has placed the ratings of ECN Capital Corp. (ECN or the Company), including the Company\u2019s Long-Term Issuer Rating of BBB (low) and Preferred Shares Rating of Pfd-3, Under Review with Negative Implications. The ratings action follows the Company\u2019s August 10, 2021 announcement that it has entered into a definitive agreement to sell its Service Finance Company, LLC (Service Finance) business to Truist Bank, the wholly owned bank subsidiary of Truist Financial Corporation. The sale is subject to standard licensing and regulatory approvals and the satisfaction of customary closing conditions. The transaction is expected to close in 4Q21.<\/p>\n

KEY RATING CONSIDERATIONS
\nThe Under Review with Negative Implications considers the impact of the sale of ECN\u2019s Service Finance business on its credit fundamentals, including a reduction in earnings generation capacity and growth potential. Partially offsetting, is the continuing solid contributions to ECN\u2019s bottom line from its Triad Financial Services, Inc. (Triad) and Kessler Financial Services LLC (Kessler) businesses, despite ongoing headwinds related to the Coronavirus Disease (COVID -19) pandemic.<\/p>\n

Upon the close of the transaction, ECN\u2019s franchise will reflect a more moderate scale of operations, including a narrower product offering. Moreover, growth will be impacted, given that Service Finance represents the majority of the Company\u2019s originations. That said, Triad\u2019s growth rate is strong and will continue to contribute to scaling the business going forward. Importantly, Triad and Kessler maintain solid market positions within their respective niches.<\/p>\n

Although the sale of Service Finance will pressure ECN\u2019s earnings generation, we expect earnings performance metrics to be solid. Additionally, we view Triad\u2019s strong originations and expanding product offering as enhancing its top line contributions, benefiting future portfolio origination services and portfolio management services revenues. Finally, as its client base activity gains momentum as coronavirus pressures recede, we anticipate Kessler\u2019s marketing services income to improve and positively impact ECN\u2019s bottom line.<\/p>\n

After the closing of the transaction, we anticipate the Company\u2019s risk profile to remain sound and well managed.
\nCredit risk will remain limited, primarily to Triad\u2019s moderately sized floorplan business, as well as Kessler\u2019s support of customer marketing campaigns. Additionally, asset risk related to its legacy asset portfolio, should be moderate, especially after the significant valuation reserves taken over the last few years. Finally, we view the Company\u2019s operational risk to remain a key risk for the Company, given that its consumer businesses have considerable compliance and regulatory oversight, and many of its Funding Partners are FDIC-insured institutions.<\/p>\n

We expect that the Company\u2019s funding position to remain acceptable, especially as Triad\u2019s originations are funded on a flow basis with Funding Partners. Overall, Triad\u2019s Funding Partners total 61 including 11 new bank and credit union partners added since the beginning of the year, demonstrating the desirability of the high quality assets originated by Triad. Overall, Triad is entirely funded for 2021and 2022. Additionally, ECN\u2019s liquidity profile is expected to remain solid, including its recently renegotiated $700 million credit line by its bank group. Meanwhile, capital will contract with the sale of Service Finance, and the Company expects to continue paying dividends and buying back shares. We would expect ECN to maintain appropriate capital levels to match their risk profile.
\nThe Under Review with Negative Implications status is generally resolved with a rating action within three months. DBRS Morningstar expects to conclude the review once the sale of Service Finance closes in 4Q21. During its review, DBRS Morningstar will assess the ultimate impact of the divesture on ECN\u2019s franchise, the expected earnings generation of the Company, and capitalization.<\/p>\n

RATING DRIVERS
\nAssuming no material changes upon the closing of the transaction, the ratings would be downgraded by one notch from the current ratings. If the transaction does not close as expected, its funding partners remain committed to the Service Finance business, and other credit fundamentals remain sound, ECN\u2019s ratings would revert back to a Stable trend.<\/p><\/blockquote>\n

Affected issues are ECN.PR.A and ECN.PR.C.<\/p>\n","protected":false},"excerpt":{"rendered":"

DBRS has announced that it: has placed the ratings of ECN Capital Corp. (ECN or the Company), including the Company\u2019s Long-Term Issuer Rating of BBB (low) and Preferred Shares Rating of Pfd-3, Under Review with …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-42448","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/42448","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=42448"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/42448\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=42448"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=42448"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=42448"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}