Fitch Expects to Rate Financiera Independencia's Upcoming Senior Unsecured Notes 'BB-(EXP)'

MONTERREY, Mexico--()--Fitch Ratings has assigned an expected rating of 'BB-(EXP)' to Financiera Independencia S.A.B. de C.V., Sofom E.N.R.'s (Findep) proposed issuance of USD200 million of senior unsecured fixed rate notes. The final rating is contingent upon the receipt of final documents to confirm information already received.

The notes will mature in 2019 and will carry a fixed interest rate to be set at the time of issuance; interest payments will be made semi-annually until maturity; and principal will be payable at maturity.

The notes will be unconditionally and irrevocably guaranteed by two subsidiaries: Financiera Finsol, S.A. de C.V. Sofom E.N.R. (Finsol Mexico) and Apoyo Economico Familiar, S.A. de C.V. Sofom E.N.R. (AEF). Findep intends to use the net proceeds from the issuance: (1) to pay the consideration, fees and expenses for the Tender Offer and Consent Solicitation and accrued and unpaid interest on the 2015 senior notes, (2) to repay certain indebtedness and (3) to the extent any proceeds remain, for general corporate purposes.

KEY RATING DRIVERS

The expected rating of the notes is at the same level as the entity's long-term foreign currency Issuer Default Rating (IDR) ('BB-'), since these notes are senior unsecured obligations. Findep's ratings are driven by its sound business franchise in the consumer finance sector, and its adequate funding and liquidity positions. The ratings also reflect strategic actions on underwriting and collection processes implemented for unsecured personal lending, later extended to group lending, which resulted in improvements on Findep's portfolio quality, profitability and capitalization.

The ratings continue to be constrained by Findep's tight capital ratios, with a tangible equity to tangible assets ratio of 15.2% at the first quarter of 2014 (1Q'14). Findep has not yet compensated the goodwill generated from the acquisitions of AEF and Finsol.

In Fitch's opinion, executed strategic changes have enhanced Findep's ability to continue strengthening its financial performance in the foreseeable future. However, Fitch does not anticipate a return on assets (ROA) to historical levels in the near term (over 10%). Still, broad volumes, ample margins and tightened operational policies, together with AEF, AFI (Apoyo Financiero) and Finsol Brazil's good performance and projected growth, could underpin earnings; although increased competition could continue constraining the speed of the recovery. Capital ratios may only recover gradually and converge toward 18% over the next two years.

RATING SENSITIVITIES

The senior unsecured notes' rating is sensitive to any changes in Findep's IDR. Findep's ratings could be downgraded if: the recently recovered operating ROA weakened to below 2%; the loan charge-off ratio had an unexpected increase above 20%; and/or the tangible equity to tangible assets ratio fell below 12%. A downgrade could also arise from negative changes on its funding profile. Findep's ratings could only benefit from a substantial enhancement of its tangible capital ratios and from a quicker than expected improvement on its overall performance.

For further information on the drivers and sensitivities of Findep, please refer to Fitch's latest Rating Action Commentary and Full Rating Report on the company, available at www.fitchratings.com.

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

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan 31, 2014);

--'Finance and Leasing Companies Criteria' (Dec. 11, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830519

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Contacts

Fitch Ratings
Primary Analyst
Veronica Chau, +52 81 8399 9169
Director
Fitch Mexico SA de CV
Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8
Col. Del Paseo Residencial
64920 Monterrey, N.L., Mexico
or
Secondary Analyst
Gilda de la Garza, +52 81 8399 9160
Associate Director
or
Committee Chairperson
Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Veronica Chau, +52 81 8399 9169
Director
Fitch Mexico SA de CV
Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8
Col. Del Paseo Residencial
64920 Monterrey, N.L., Mexico
or
Secondary Analyst
Gilda de la Garza, +52 81 8399 9160
Associate Director
or
Committee Chairperson
Franklin Santarelli, +1-212-908-0739
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com