(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)