July 25, 2012 / 6:41 PM / 5 years ago

TEXT-S&P revises Community Choice Financial outlook

 (The following statement was released by the rating agency)
Overview
  -- The weakness of Community Choice Financial Inc.'s business
position as a result of legislative risk has diminished slightly because we
believe the company will continue to operate under the Ohio Mortgage Loan Act.
  -- CCFI's successful integration of California Check Cashing Stores and 
several smaller acquisitions demonstrates management's ability to diversify 
and grow the company.
  -- We are revising our outlook to positive from stable, and we're 
affirming the 'B-' issuer credit rating.
  -- The positive outlook reflects our view that legislative and regulatory 
risks at the state and federal levels have declined, and risks related to 
regulation by the Consumer Financial Protection Bureau could be less adverse 
than we initially expected.

Rating Action
On July 25, 2012, Standard & Poor's Ratings Services revised its outlook on 
Ohio-based Community Choice Financial (CCFI) to positive from stable. At the 
same time, we affirmed the 'B-' issuer credit rating.

Rationale
The outlook revision reflects our view that the weakness of CCFI's business 
position as a result of legislative risk has diminished slightly because we 
believe the company will continue to operate under the Ohio Mortgage Loan Act 
regulations. Although regulatory and legislative matters at both the state and 
federal levels will continue to be a credit weakness, we believe that the 
management team has demonstrated an ability to mitigate these risks and 
maintain revenues through product innovation. Based on regulatory decisions 
the Consumer Financial Protection Bureau (CFPB) has made to date, we think 
that risks related to regulation by the CFPB will be less adverse than our 
initial expectations, which we factored into the current rating. We believe 
that the CFPB will concentrate largely on improved disclosure and consumer 
understanding of the products offered by CCFI, which will not have a 
devastating effect on CCFI's ability to continue operations. We also expect 
regulatory costs to be manageable. 

In our view, the company's diversification and expansion strategy is a 
positive ratings factor. During the past few years, CCFI's management team has 
successfully acquired several companies--with the acquisition of California 
Check Cashing Stores in April 2011 being the largest--and improved the 
store-level financial performance of these companies through the introduction 
of CCFI's existing suite of products and operating strategies. Nevertheless, 
CCFI's business is still substantially concentrated in two states--California 
and Ohio--with about 60% of stores located in those states.

CCFI's introduction of new products, such as title loans, installment loans, 
and prepaid cards, should generate higher earnings for the company and serve 
as a buffer if regulation makes existing products unprofitable. We believe 
that the acquisition of Internet lender Direct Financial Solutions in April 
2012 may also be a meaningful complement to the company's brick-and-mortar 
strategy.


Outlook
The positive outlook reflects our expectation that CCFI should be able to 
manage legislative and regulatory risks. At the same time, CCFI has maintained 
stable earnings and cash flows, which we expect to continue. CCFI's financial 
metrics are largely in line with a 'B' rating. We could raise the rating 
within the next 12 months if CCFI maintains its financial metrics and CFPB's 
examination findings do not result in changes that significantly affect future 
earnings--either by eliminating or severely limiting CCFI's ability to 
originate certain products, or through fines for practices that the CFPB finds 
inappropriate. We could lower the rating if leverage, measured as a ratio of 
debt to EBITDA, increases by more than 20%, or if legislative or regulatory 
issues arise. 
Related Criteria And Research
Rating Finance Companies, March 18, 2004
Ratings List

Ratings Affirmed; Outlook Action
                                     To                 From
Community Choice Financial
 Issuer Credit Rating                   B-/Positive/--     B-/Stable/--

Ratings Affirmed

Community Choice Financial
 Senior Secured
  Local Currency                        B-                 
  Recovery Rating                       4                  

 (Caryn Trokie, New York Ratings Unit)
 

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