Rating action

Scope Ratings has today assigned first-time issuer ratings of A- to Norwegian finance company Brage Finans AS. The agency also assigned first-time ratings of A- to senior unsecured debt issued by Brage Finans AS. All ratings have a Stable Outlook.

Rating rationale

The ratings reflect Brage Finans’ (Brage) successful leasing and car finance business, solid credit fundamentals and strategic relationship with its owners. Founded by an experienced management team in 2010, Brage is a Norwegian finance company offering primarily equipment leasing for business clients and car loans for individuals.

Brage serves as the finance company for its owners, 12 solid savings banks located along the coast of Norway, from Sparebanken Sor in Agder / Telemark to Helgeland Sparebank in Nordland. Combined, the owner banks have more than 100 local offices, forming an essential part of the company’s distribution network. With five of eight members on the board coming from the banks, the owners steer the strategic direction of the company. In addition, the owner banks have consistently provided capital and credit facilities to support Brage’s development.

The business has demonstrated robust growth, starting with equipment leasing for the owner banks (2010), then car loans for the owner banks (2013), and then distribution through equipment (2015) and car dealers (2017). Brage became profitable after less than three years in operation and returns have continued to increase. At the same time, credit quality has remained strong underpinned by a diverse credit portfolio, a low to moderate risk appetite in line with that of the owner banks and a favourable macro environment.

The nature of Brage’s business, however, entails greater asset risk than traditional banking focused on mortgage lending. Meanwhile, leasing offers higher margins, but counterparties are often small businesses in cyclical sectors like construction and manufacturing.

Brage is a licensed finance company regulated and supervised by the Norwegian FSA. The company is subject to most of the same requirements as banks, including in the areas of solvency and liquidity. Brage maintains reassuring prudential metrics in line with relatively stringent requirements. As it is not authorised to collect deposits, Brage relies on wholesale funding and is a frequent issuer in the domestic debt market.

Rating-change drivers

Among potential negative rating change drivers, Scope highlights the following: (i) a change in the strategic relationship between Brage and its owner banks and (ii) a material deterioration in the regional economies where Brage’s activities are concentrated as this could impact earnings and asset quality. Meanwhile, potential positive rating change drivers include: (i) continued sustainable growth with increasing business diversification but without a material increase in risks and (ii) reducing the reliance on confidence-sensitive market funding.

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

Methodology
The methodology used for these ratings and rating outlooks, Bank Rating Methodology, is available on www.scoperatings.com.
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.
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 and third parties.
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.
Lead analyst: Pauline Lambert, Executive Director.
Person responsible for approval of the rating: Dierk Brandenburg, Managing Director.
The ratings/outlooks were first released by Scope on 28 January 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.

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