U.K.-Based Arrow Global #BB-# Rating Affirmed On Proposed R Outlook Stable

Stocks and Financial Services Press Releases Wednesday August 31, 2016 17:37
LONDON--31 Aug--S&P Global Ratings

LONDON (S&P Global Ratings) Aug. 31, 2016--S&P Global Ratings today said it has affirmed its 'BB-' long-term counterparty credit rating on U.K.-based debt collection company Arrow Global Group PLC (Arrow Global). The outlook is

stable.

At the same time, we assigned a 'BB' issue rating and recovery rating of '2' to the senior secured notes issued by Arrow Global Finance PLC. The rating on the proposed refinancing is subject to our review of the notes' final documentation.

We also affirmed our 'BB' issue ratings on the existing senior secured notes.

In our view, the proposed refinancing of Arrow Global's £220 million senior secured notes does not affect ourrating on the group or its financial risk profile (see "U.K.-Based Arrow Global Group Upgraded To 'BB-' On Consistent

Creit Ratios; Outlook Stable," published on Aug. 1, 2016 on RatingsDirect).

We expect credit metrics to remain in line with our existing expectations despite the potential for a slight incremental increase in debt and a modest reduction in the company's interest expense on the back of lower debt

repayments. We project the following:
Gross debt to S&P Global Ratings-adjusted EBITDA of between 3x-4x (adjusted EBITDA is gross of portfolio amortization);

Funds from operations (FFO) to total debt of between 20%-30%; and Adjusted EBITDA coverage of interest expense of between 3x-6x.We expect these metrics to remain within these ranges over our one-year outlook horizon, albeit with a slight deleveraging trend and improving debt-servicing capabilities on the back of increased earnings capacity, improving collection capabilities, and alternative avenues for revenue generation following its expansion into Portugal and The Netherlands. Our forward-looking analysis of the company's financial risk profile applies a 20% weight to year-end 2015 and 40% weights to year-end projections for both 2016 and 2017.

The stable outlook reflects our view that the organic growth of Arrow Global's debt portfolios and recent acquisitions and partnerships will lead to stable credit metrics over the next 12-18 months.

This scenario is predicated on continued controlled growth in parts of mainland Europe, the growing proportion of revenue from third-party servicing fee income, and the successful integration in the final stages of U.K.-based credit solutions provider Capquest and early stages of Dutch-based receivables manager InVesting B.V.

We could lower the ratings if we saw a material increase in management's leverage tolerance, a failure in Arrow Global's control framework, or adverse changes in the regulatory environment leading to an erosion of the company's profitability or operational efficiency.

We consider an upgrade to be unlikely over the next 12-18 months. We could raise the ratings if we saw materially greater diversification in the franchise that supported the future stability of earnings, for instance, a material increase in fee income generated in collection services for third parties to levels similar to more diversified peers.

We could also raise the ratings if we believe Arrow Global's credit metrics were to trend in the following categories on a sustainable basis: Gross debt to adjusted EBITDA between 2x-3x;FFO to total debt of between 30%-45%; and Adjusted EBITDA coverage of interest expense of between 6x-10x.


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