DBRS Assigns Rating of Pfd-3 (low) to ECN Capital Corporation’s Preferred Share Issuance, Trend Stb

DBRS, Inc. (DBRS) has today assigned a rating of Pfd-3 (low) to the C$100 million Cumulative Five-Year Minimum Reset Preferred Shares, Series A (the Preferred Shares) issued by ECN Capital Corporation (ECN or the Company). The trend on the Preferred Shares is Stable. The proceeds from the Preferred Shares will be included in the general funds of ECN and available for general corporate purposes.

The ratings of ECN reflect the Company’s solid franchise as a leading commercial lender and lessor in North America with strong origination platforms and sound risk management across multiple asset classes. The ratings also consider the solid earnings generation derived from the franchise, producing more than sufficient pre-provision earnings to absorb the cost of credit with a solid cushion to absorb potentially higher losses that would be expected through the cycle, as well as unexpected losses. Funding is appropriate and aligned with the asset base, while leverage is considered low compared to peers. The Company’s reliance on secured forms of wholesale funding and execution risks associated with the Company’s evolving strategy to become more “asset-lite”, as well as the potential for entry into new business activities currently constrain the ratings.

The Stable trend reflects DBRS’s expectations that ECN will successfully separate from Element Fleet Management Corporation with no material operational-related charges, and continue to generate solid returns while retaining capital to support new activities. Moreover, the trend considers DBRS’s expectations that the slow but steady economic growth in the U.S., as well as in Canada, will continue to provide the Company with sound growth opportunities in its chosen markets.

RATING DRIVERS
While near-term upward ratings migration is unlikely, over the medium-term, ratings could be positively impacted by a successful execution on the “asset-lite” strategy while maintaining asset quality within expectations and balance sheet leverage at current levels. Sustained earnings expansion that is supported by a more balanced mix of revenues would also be viewed positively by DBRS. A more balanced funding profile and lower asset encumbrance resulting in improved financial flexibility would be viewed favorably. Conversely, a noteworthy increase in leverage, sustained deterioration in operating performance, or indications of miss-steps in the execution of the “asset-lite” strategy evidenced by loss of key customers or operational-related charges could result in negative ratings pressure. Ratings could also be pressured by a material acquisition that DBRS views as outside of ECN’s core verticals and capabilities.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Finance Companies (October 2016) and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (January 2016), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: David Laterza
Rating Committee Chair: Michael Driscoll

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.