Rating action

Scope Ratings has today downgraded the issuer ratings from A- to BBB+ on Greensill Bank. Scope assigned a short-term debt rating of S-2. The outlook on all ratings is negative.

Rating rationale

After a substantial capital injection from the parent in 2019, Greensill Bank AG (“Greensill Bank”) has successfully implemented its business plan by growing its balance sheet and investing heavily in systems and staffing. Profitability and capitalisation have developed in line with our expectations.

The ratings downgrade reflects the changed global operating environment for parent company Greensill Capital Pty (“Greensill Capital”) due to the sharp decline in global growth triggered by the Covid-19 induced recession.

While the outright credit risk tends to be well covered by credit insurance, we expect the negative economic outlook to result in lower business growth and rising insurance cost, which will have a negative impact on profitability. Our negative outlook reflects our view that the difficult operating environment will persist for some time.

Rating drivers

Greensill Bank is part of Greensill Capital, a leading global player in supply chain finance. Greensill Bank is fully dependent on Greensill Capital to generate business and hedge its credit exposure. The close link implies that the credit profile of the bank is linked to the overall risk profile of Greensill Capital.

The loan book consists of factoring and reverse factoring obligations that are fully covered by credit insurance, leaving the bank with limited exposure to credit risk. Liquidity risk is mitigated by the short-dated nature of its factoring exposure that is refinanced with term deposits. This is reflected in the S-2 short-term debt rating.

The volatile operating environment has exposed the group’s reliance on cyclical customer business and weaknesses in Greensill Capital’s governance regarding third-party funds. We acknowledge that the Board has taken steps to address these issues by overhauling the governance structure and by adding resources to risk management.

Greensill Bank benefits from very high capitalisation and liquidity after a capital increase earmarked for future growth. Thus, ratios will normalise as the bank grows its asset portfolio. The balance sheet benefits from the short-dated nature of trade receivables that are enhanced by credit insurance from high-quality credit insurers. The assets are appropriately matched with term deposits covered by deposit insurance.

Greensill Capital’s use of third-party IT platforms for origination, structuring and servicing exposes the group to elevated levels of operational risk. Greensill Bank’s staffing and systems need continuous reinforcement to handle the expansion.

Rating-change drivers

Positive rating-change driver:

Successful execution of Greensill Capital’s growth strategy without any detrimental impact to the risk profile and profitability of Greensill Bank

Negative rating-change drivers:

Loss of insurance cover, a material downgrade of credit insurance counterparties or unexpected losses to Greensill Bank due to delayed or sub-par recoveries.

Loss of ongoing access to Germany’s voluntary private bank depositor protection fund.

Operational risk events related to IT platforms, litigation, loss of key staff or reputation leading to reduced origination capacity of Greensill Capital.  

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

The methodology used for this rating(s) and/or rating outlook(s) (Bank Rating Methodology, 4 May 2020) is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dierk Brandenburg, Managing Director.
Person responsible for approval of the rating: Pauline Lambert, Executive Director.
The issuer rating/outlook was first released by Scope on 19 July 2019. 
The short-term rating/outlook was first released by Scope on 17 September 2020.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.