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Fitch affirms Romania's Autonom Services at 'B+', upgrades outlook to stable

Fitch affirms Romania's Autonom Services at 'B+', upgrades outlook to stable Autonom, leasing

BUCHAREST (Romania), June 4 (SeeNews) - Fitch Ratings said that it has affirmed the long-term issuer default rating (IDR) of Romanian short-term mobility services provider Autonom Services at 'B+' and upgraded its outlook on the rating to stable from negative.

The revision of the outlook reflects Autonom's resilient financial performance since the onset of the pandemic, notably regarding profitability, asset quality and funding and liquidity, the global ratings agency said in a statement on Thursday.

"Consequently, Fitch expects Autonom's performance to further recover in 2021 and that the company will maintain sufficient headroom above any downgrade triggers identified in the analysis."

Autonom is a small, privately-owned car lessor predominately offering operating leasing services to around 1,500 SMEs in Romania. At end-2020, it had around 6,700 vehicles under operating leasing contracts.

In March, Autonom Services announced that it had completed the absorption of BT Operational Leasing, previously owned by local financial group Banca Transilvania (BT), which it acquired for an undisclosed sum from BT Group in May 2018.

Fitch also said in the statement:

"(...) KEY RATING DRIVERS

IDRs

Autonom's Long-Term IDR reflects its company profile as a Romanian car lessor providing operating leasing and to a lesser extent, short-term rentals to domestic SMEs. Autonom's franchise is small but growing and benefits from an increasing leasing penetration rate in Romania. Fitch has identified Autonom's modest size, concentrated franchise and monoline business model as factors constraining its rating.

Autonom's ratings also consider the company's adequate profitability, helped in 2020 by limited reliance on short-term rentals, reasonable asset quality and an experienced management team. However, they also reflect its less developed corporate governance (compared with higher-rated peers) and a funding profile that is predominantly secured, limiting the company's financial flexibility in times of stress.

Autonom has a moderate franchise by international standards in the growing segment of operating fleet leasing in Romania (total assets of RON641 million at end-2020). The company caters to SMEs, mostly outside Bucharest, which are not served by its international competitors. Autonom also offers short-term rental solutions (under 25% of its fleet at end-2020) to Romanian corporates. Only a minor portion is dependent on tourist arrivals at airports.

Autonom reacted swiftly to the coronavirus crisis, containing pressure on asset quality and profitability, among other things by reducing its short-term rental fleet to cope with lower tourist arrivals and lower mobility during the lockdowns. It also proactively granted limited payment holidays for its operating leasing fleet and redefined the baseline services included in the contracts, among other measures. As a result, the ratio of gross credit impairments to fleet value and gross receivables was 3.1% at end-2020 (2.9% at end-2019), while pre-tax income to average assets was 1.4% (3.4% in 2019). We treat depreciation charges as a regular business expense for Autonom because the company needs to renovate its fleet on a rolling basis.

Swift repossession, low concentration by counterparty, higher yield on SMEs and the secured nature of operating leasing help mitigate the higher credit risk of Romanian SMEs. Autonom's focus on corporate clients and moderate exposure to business volumes relying on tourism arrivals and airport traffic supported its performance in 2020 and help reduce vulnerability to future lockdowns and lower international travel volumes.

Fitch's assessment of Autonom's funding profile is constrained by a high share of secured funding (about 80% at end-2020) and mostly encumbered assets (about 75% at end-2020). However, Autonom managed its funding and liquidity profile well during 2020, including by returning into compliance with its debt covenants and harmonising covenants across its lenders. Autonom has built up additional liquidity since the beginning of the pandemic and continued efforts to diversify its funding base, which Fitch views positively.

Autonom is a family-owned company, founded by brothers Marius and Dan Stefan. A longstanding management team, articulated medium-term strategy and intention to adopt managerial best practices somewhat mitigate key-person risks in relation to its founders and less developed corporate governance, which is in line with other privately-held peers. The latter is reflected in Fitch's ESG governance score of '4'.

SENIOR UNSECURED DEBT

Fitch notches Autonom's senior unsecured debt rating down twice from the company's Long-Term IDR, as reflected in the Recovery Rating of 'RR6'. This indicates expectations of poor recoveries, driven by its contractual subordination to predominantly secured funding.

RATING SENSITIVITIES

IDRs

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- Increase of gross debt to tangible equity above 5x on a sustained basis, particularly if in conjunction with materially lower liquid assets.

- Material deterioration in asset quality and earnings, putting pressure on Autonom's EBITDA-based financial covenants.

- Weaker funding flexibility or rising refinancing risks driven by covenant breaches or increased asset encumbrance.

- Deterioration in Autonom's competitive position.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- Upside potential is limited in the short term and any upgrade would require a material increase in business scale while maintaining sound profitability and adequate leverage, coupled with a more formalised governance structure.

- Further diversification and extension of the funding profile, especially in unsecured debt, together with other factors would support a higher rating.

SENIOR UNSECURED DEBT

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- A downgrade of Autonom's Long-Term IDR would be mirrored in a downgrade of the senior unsecured debt rating.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- The senior unsecured debt rating could be upgraded following an upgrade of Autonom's Long-Term IDR or following an upward revision of recovery expectations, for example due to a lower share of secured debt."

(1 euro=4.9227 lei)

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