AnaCap Financial Europe S.A.

The stable outlook on AFE reflects S&P Global Ratings' view that the company's relatively defendable cost base and stable liquidity buffers will support its credit profile over the next 12 months, despite very high leverage. We could consider a negative rating action on AFE in the next 12 months if the group's liquidity position and covenant headroom were to worsen on a prolonged basis. We believe an upgrade is unlikely at present. Over the medium term, if AFE is able to demonstrate stable, more predictable cash flow generation in line with peers' rated at the 'B+' level, while maintaining profitability metrics above peers', or meaningfully enhancing its competitive position in its core markets, we could consider taking a positive rating

...The pandemic has materially weakened Anacap Financial Europe's (AFE's) financial position. The pandemic has significantly worsened AFE's expected cash collections for 2020. Not only has this led to a material worsening in our expectations for cash and statutory leverage in 2020, with cash adjusted leverage spikes exceeding 7.5x, it has also seen material portfolio impairments for the group that have left AFE with a negative equity position. In combination, the group's weak leverage metrics and its significantly diminished equity base are important rating constraints. AFE's niche strategy and low operational leverage should continue to generate robust, but volatile, profitability. We expect that AFE's significant cost flexibility will continue to generate leading profitability metrics for the sector. However, metrics will be volatile given the concentrated nature of AFE's collections profile, and the sensitivity of these cash flows to changes in timing and quantum of collection. We expect...

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