AnaCap Financial Europe S.A.

The stable outlook on AFE reflects our view that the company's relatively defendable cost base and stable liquidity will support the 'B' rating over the next 12 months. We could consider revising the outlook to negative if the group's financial performance and liquidity, or covenant position, worsen on a prolonged basis over the next 12 months. This could be a consequence of underperformance in AFE's increasingly important direct real estate portfolios that, although profitable, could introduce unexpected volatility in asset quality, earnings, and cash flows; or if the group is unable to deploy new capital, reducing its asset base and pressuring covenants. We believe an upgrade is unlikely at present. Over the medium term, if AFE can demonstrate stable, predictable

...Anacap Financial Europe's (AFE's) financial metrics have been significantly weakened by the effects of the COVID-19 pandemic. The pandemic significantly worsened AFE's cash collections in 2020, which led to a sharp deterioration in cash leverage. Alongside this, material portfolio impairments in 2020 have resulted in a negative equity position. In combination, the group's weak leverage metrics and its significantly diminished equity base are key rating constraints. AFE's niche strategy and increasing investments in real estate should continue to generate robust, but volatile, profitability. S&P Global Ratings expects that AFE's operating performance will begin to return to more robust levels in 2021. However, we expect that metrics will be volatile given the concentration of AFE's loans in secured portfolios. Alongside this, 2020 saw AFE accelerate its direct investment into real estate assets, which we believe carries heightened risk, and could exacerbate an already sensitive cash flow...

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