September 5, 2017 / 9:12 PM / a year ago

Fitch Expects to Rate IBM Credit LLC's Unsecured Notes 'A+'

(The following statement was released by the rating agency) NEW YORK, September 05 (Fitch) Fitch Ratings has assigned an expected rating of 'A+(EXP)' to IBM Credit LLC's (ICLLC) unsecured notes issuance. The notes will rank pari passu with all other unsecured and unsubordinated debt of ICLLC. Proceeds will be used for general corporate purposes, which may include the repayment of debt, investments in or extensions of credit to ICLLC's subsidiaries or the financing of possible acquisitions or business expansion. KEY RATING DRIVERS SENIOR DEBT The equalization of the unsecured ratings with ICLLC's Long-Term Issuer Default Rating (IDR) reflects the expectation of average recovery prospects for the notes and Fitch's expectation that proceeds from the issuance will be used to repay existing debt outstanding, as necessary, to manage leverage to ICLLC's target of 9x debt-to-equity. ICLLC's Long- and Short-Term ratings are equalized with those of International Business Machines Corporation (IBM), reflecting Fitch's view that ICLLC is a core subsidiary of IBM, as defined under Fitch's "Global Non-Bank Financial Institutions Rating Criteria" dated March 10, 2017. IBM is rated 'A+'/'F1'/Outlook Negative. Fitch's view that ICLLC is a core subsidiary of IBM is supported by its 100% ownership, shared branding, importance to achieving IBM's strategic objectives, and the Support Agreement (SA) between the two entities. The SA requires IBM to maintain 51% ownership of ICLLC, maintain ICLLC's tangible net worth at no less than $50 million, and maintain ICLLC's debt-to-equity ratio at no more than 11x. Beyond these support-driven considerations, Fitch also considers ICLLC's solid operating performance, strong asset quality metrics, and sufficient liquidity. These factors are counterbalanced by ICLLC's elevated leverage relative to stand-alone finance companies, although the leverage target is consistent with some similarly-rated captive finance peers, and its reliance on wholesale funding sources. For additional details, see "Fitch Assigns First-Time Ratings of 'A+'/'F1' to IBM Credit LLC; Outlook Negative", dated July 28, 2017. RATING SENSITIVITIES SENIOR DEBT Senior debt ratings are primarily linked to changes in the Long-Term IDR, but are also sensitive to changes in recovery prospects for the debt class. Positive rating momentum for ICLLC would be limited by Fitch's view of IBM's credit profile, as ICLLC's ratings and Outlook are linked to that of its parent. Fitch cannot envision a scenario where the captive would be rated higher than its parent. Conversely, negative rating actions for ICLLC could be driven by a change in the perceived relationship with IBM and ICLLC. For example, if Fitch believes that ICLLC was no longer core to IBM's strategic operations and/or adequate financial support was not provided to the captive finance subsidiary in a time of need. In addition, consistent operating losses, deterioration in asset quality, an increase in the targeted leverage ratio, and/or weakening of ICLLC's liquidity profile could also drive negative rating action. Fitch expects to assign the following rating: IBM Credit LLC --Senior unsecured debt at 'A+(EXP)'. Existing ratings for ICLLC are as follows: --Long-Term IDR 'A+'; --Short-Term IDR 'F1'; --Commercial paper 'F1'. The Rating Outlook is Negative. Contact: Primary Analyst Chelsea Richardson Associate Director + 1 212-612-7899 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Sean Pattap Senior Director + 1 212-908-0642 Committee Chairperson Doriana Gamboa Senior Director +1 212-908-0865 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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