TRIS Reassigns GECAL's Company and First Issue Ratings
and Assigns Its 2nd Issue Rating
Thai Rating and Information Services Co., Ltd. (TRIS) announced in a CreditUpdate Tuesday 25 July 2000 that it has reassigned the company credit rating and the first senior debentures rating of GE Capital Auto Lease PLC (GECAL) at "A+." At the same time, TRIS has assigned a "A+" rating to GECAL's second issue of Bt5,000 million senior debentures due in 2002. The ratings reflect TRIS's adoption of a national scale rating system, that focuses exclusively on company and issue ratings in local currency and that is relevant only for comparison within the domestic market. Under the national scale rating system which takes effective on 25 July 2000, the highest credit rating within the country is "AAA."
TRIS said that the ratings of GECAL continue to reflect the company's very strong market position and sound financial profile together with the support it receives from its ultimate parent company, General Electric Capital Corporation (GECC). To provide GECAL financial flexibility to service its debt, GECC continues to commit a US$130 million revolving credit line to GECAL. Furthermore, GECC also facilitates GECAL's leverage position (total debt to capital base) to meet its financial covenants by committing a US$20 million Bt-equivalent subordinated credit line to GECAL. Subordinated debt counts as part of GECAL's capital base. Currently, the parent has contributed Bt350 million of subordinated debt to GECAL's capital base under this US$20 million Bt-equivalent line, with a further Bt200 million likely to be contributed by September 2000. GECAL reported audited net profits of Bt259 million for 1999, less than its unaudited report of Bt282 million net profits because of losses on sale of repossessed cars that occurred at the end of 1999. However, its 2.21% return on assets and 26.48% return on equity as of 31 December 1999 were still favorable. Moreover, the company is benefiting from a quality program initiated in 1997. Cost savings are seen in the gradual decline of the operating expenses to total income ratio from 32.48% in 1997 to 25.88% in 1999. This program will support GECAL's financial profile for the years to come.
Economic recovery has increased demand for automobiles and accelerated GECAL's implementation of a new marketing strategy aimed at expanding market share. Its Private Label Program, a special hire purchase program with Nissan, Mitsubishi and BMW, has enlarged GECAL's loans to these brands from 45% in 1999 to 48% of its loan portfolio in the first quarter of 2000. Furthermore, the company embarked on an e-commerce venture in early 2000 in anticipation of growth in this channel for automobile financing. However, contributions from this new business remain to be seen. Meanwhile, GECAL continues to maintain global standard practices in managing its asset quality. The delinquency rate for accounts 30 days plus past due dropped from 5.39% as of 31 December 1999 to 4.69% as of 31 March 2000. Based on the Bank of Thailand's three month past due criteria, the company's non-performing loan ratio improved from 1.58% in 1999 to 1.06% at the first quarter 2000. This ratio is considerably lower than the 12.90% level for hire purchase loans of all finance companies. To minimize risk exposure, the company has stringent collection procedures. GECAL has changed its practice of repossessing vehicles on accounts 120 days past due to repossessing vehicles on accounts 60 days past due.
GECAL has sufficient sources of third party funds besides its parent company. The first two debentures issues are sources of long-term funds that match the tenure of its loan portfolio and will help reduce financing cost. Support from its parent and potential market expansion will generate sufficient cashflow to service repayment of its debentureholders. However, its aggressive expansion might expose company operations to less qualified customers. Profitability might drop as the growth of assets affects GECAL's rate of return. Furthermore, the leverage position may be greater than debentureholder financial covenants and might cause GECAL to require more funds from its parent. TRIS is also concerned by a clause in the terms and conditions of the debentures issues that allows GECAL to merge, amalgamate or consolidate with any of GECC's subsidiaries in Thailand without prior approval of the debentureholders. This may increase the risk profile of the company for the debentureholders. However, Thai public limited companies act would still require notification of and post facto consent by the debentureholders.
GE Capital Auto Lease PLC (GECAL): Company rating Senior debt A+
Issue rating GECAL#1: Bt5,000 million senior debentures due 2003 A+ GECAL#2: Bt5,000 million senior debentures due 2002 A+
Note: "CreditUpdate" reviews ratings of companies or debt issues that have already been rated by TRIS. The CreditUpdate occurs when new debt instruments are issued or if significant events have taken place that may impact a company's current ratings or when current ratings are cancelled. The CreditUpdate announces whether a rating has been "upgraded," "downgraded," "affirmed" or "cancelled." The update includes information to supplement the previously published ratings.
CreditUpdates are part of TRIS's monitoring process. TRIS monitors every rating it assigns until either the debt instrument matures or the rating contract ends. To keep the public informed of changing situations, TRIS periodically issues announcements about the credit ratings it monitors.