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Motability Operations Group plc -- Moody's affirms Motability Operations Group plc's debt rating at A1, with a stable outlook

·13 min read

Rating Action: Moody's affirms Motability Operations Group plc's debt rating at A1, with a stable outlookGlobal Credit Research - 09 Feb 2021London, 09 February 2021 -- Moody's Investors Service ("Moody's") affirmed the long-term issuer and backed senior unsecured debt ratings of Motability Operations Group plc ("MO") at A1. The outlook on the issuer remains stable.A list of affected ratings can be found at the end of this press release.RATINGS RATIONALEThe affirmation of the ratings reflects MO's continued solid financial performance and resilience despite the impact of the coronavirus crisis on the company's operations.MO's a3 standalone assessment reflects the company's (1) solid and stable underlying profitability and interest coverage, aided by its strong market position; (2) solid capitalisation and moderate leverage; 3) resilient liquidity position, with ample availability under the revolving credit facility, as well as (4) high but well-managed exposure to residual value risk on the vehicles at the end of the lease . The standalone assessment of a3 also reflects MO's franchise positioning in vehicle leasing to customers with disability, operating under a public policy mandate as the sole leasing company providing vehicles to disabled people in receipt of government-funded mobility allowances.The A1 issuer rating and backed senior unsecured debt rating affirmations reflect MO's (1) standalone credit assessment of a3 and (2) two notches of uplift, reflecting Moody's expectation of high support from the Government of the UK (Aa3 stable) in the event of MO's distress, given the company's unique UK franchise and the benefit it provides to recipients of the UK's disability living allowance. MO operates under a contract with Motability Charity, which has been responsible for securing support from the UK Government to provide access to affordable leasing solutions for recipients of certain government mobility allowances. Also incorporated in our assessment of support is MO's relatively small size relative to the amount of the government's public funds, translating into high capacity of potential government support.The stable issuer outlook reflects Moody's expectations that MO's performance will continue to be in line with that of its a3 standalone credit assessment, supported by its strong franchise and large liquidity buffers, as well as that the UK government continues to be supportive of the mobility scheme MO operates, and that the company would not make charitable donations that would reduce its capital levels below the set policy targets.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward pressure on the company's ratings is unlikely, given the narrow, although entrenched, purpose of MO's franchise.Downward pressure on the ratings could arise if MO: 1) experiences erosion in franchise value; 2) significantly increases its Debt/EBITDA leverage; 3) reduces capital below its policy targets through material charitable distributions; 4) its management of lease residual value risk weakens; and 5) if its liquidity and funding profile weakens, as evidenced by a material reduction in the limit of the committed facilities or by encumbrance of a large proportion of its balance sheet.Downward pressure on MO's ratings could also develop if MO Reinsurance Ltd (MORL), the company's Isle of Man insurance subsidiary, were to face significant losses that are not covered by the reinsurance programme.LIST OF AFFECTED RATINGSIssuer: Motability Operations Group plc..Affirmations:....Long-term Issuer Rating, affirmed A1....Backed Senior Unsecured Regular Bond/Debenture, affirmed A1....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)A1 ..Outlook Action: ....Outlook remains Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Anna Sherbakova Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Carola Schuler MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. 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