Credit card receivables at National Commercial Bank (NCB) have fallen by 16 per cent in the seven months up to July 2020, said ratings agency Fitch ahead of new debt issuance.
Yesterday, Fitch said it expected to rate the Jamaica Diversified Payment Rights Company’s issuance of $175 million of series 2020-1 notes ‘BB (EXP)’.
The rating outlook is stable. The proposed transaction will be backed by existing and future USD diversified payment rights (DPRs) originated by National Commercial Bank Jamaica Limited (NCBJ).
Fitch said NCBJ processed approximately $1.64 billion in DPR flows during the seven months ending July 2020, which reflects an approximate decrease of 16 per cent when compared to the same period in 2019.
The ratings agency commented, “Global events such as the sharp economic contraction caused by the coronavirus pandemic and different containment measures have reduced transaction cash flows, which can add pressure to the assigned ratings.”
Additionally, the diversified payment rights programme involves top beneficiaries that are NCBJ affiliates as well as entities with high domestically originated, government-related and/or capital flows (which Fitch sees as more volatile than export-related payments and remittances).
Fitch commented, “No company is immune to the economic and political conditions of its home country. Political risks and the potential for sovereign interference may increase as a sovereign’s rating is downgraded.
However, the underlying structure and transaction enhancements mitigate these risks to a level consistent with the assigned rating.”
Transaction proceeds of the debt raised will be used to repay the outstanding balance of the 2013-1 notes issued from the same program and general corporate purposes. This transaction represents the third issuance out of the program, which was established in 2006.
Fitch said the rating of this future flow transaction is tied to the credit quality of the originator, NCBJ.
On April 15, 2020, Fitch affirmed NCBJ’s Long-Term Issuer Default Rating (IDR) at ‘B+’ and revised the Rating Outlook to Negative from Positive following the revision of Jamaica’s Rating Outlook to Stable from Positive on April 10, 2020. The Jamaican operating environment remains the principal constraint on NCBJ’s ratings.
The Outlook of NCBJ’s ratings reflects the downside risk to NCBJ’s credit profile resulting from the economic implications of the coronavirus pandemic.
Fitch considers the future flow programs will continue to remain the main source of long-term funding for NCBJ, limiting the notes’ rating uplift.