AnaCap Financial Europe S.A.

The negative outlook on AFE reflects our view that the group's leverage and debt-service metrics will remain volatile and relatively high for the rating level over the coming 12 months. We could lower the rating on AFE if the group fails to manage the volatility of its leverage and coverage ratios in the next 12 months. Specifically, if we expected AFE's adjusted gross debt-to-EBITDA ratio to sit above our target range of 4.2x-4.4x at year-end 2019, we would likely lower the rating to 'B+'. We could revise the outlook to stable if AFE is able to demonstrate a degree of stabilization in its cash flows, with noticeably lower swings in its leverage and quarterly cash flows as collections diversify by

...Anacap's (AFE) niche strategy and low operational leverage should continue to generate robust profitability.We expect that AFE's significant cost flexibility and strategy of investing in niche nonperforming loan portfolios in Southern Europe will continue to generate leading profitability metrics. However, we forecast adjusted EBITDA to be flat in 2019. Volatile, concentrated cash flows, and an increased cost to collect across 2019 will increase leverage. Low expected cash collections and a significant increase in cost to collect in 2019 following 2018's deployment will see leverage increase by 10-25 basis points (bps) in our base case. That said, we expect AFE to return to leverage commensurate with the rating level by year-end 2020. We expect AFE to have a stable and relatively supportive level of liquidity over the next 12 months. We think that AFE's solid cash flow generation, revolving credit facility (RCF) headroom, and access to its securitization facility will support liquidity...

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