Press Release

DBRS Morningstar Confirms ECN Capital’s BBB (low) Long-Term Issuer Rating; Trend Stable

Non-Bank Financial Institutions
March 25, 2020

DBRS, Inc. (DBRS Morningstar) confirmed the BBB (low) Long-Term Issuer Rating and Pfd-3 (low) Preferred Shares rating of ECN Capital Corp. (ECN or the Company). The trend on all ratings is Stable. The Intrinsic Assessment (IA) for ECN is BBB (low) and the Support Assessment is SA3, resulting in the Company’s Long-Term Issuer Rating being equalized with the IA..

ECN’s ratings and Stable trend reflect the Company’s solid franchise, which is underpinned by its three business segments each having a top-tier market share. Moreover, the Company’s solid balance sheet fundamentals including its efficient funding profile, where originations are funded on a flow basis by a growing group of banks and credit unions, as well as its sound risk profile, which primarily consists of operational risk, support the ratings. After incurring substantial costs to transform the business model to an asset-light balance sheet resulting in reported annual losses the past two years, DBRS Morningstar views ECN as well-positioned to report sustainable improved reported earnings, especially once the Coronavirus Disease (COVID-19) pressures begin to subside. Nonetheless, DBRS Morningstar contemplates bottom line pressure from the outbreak in the short term, which we will continue to monitor.

Sustained improvements in adjusted profitability and reported earnings, while maintaining disciplined capital management and risk aversion, could have positive ratings implications. Exiting the remainder of its legacy assets without incurring additional significant charges, would also be viewed favorably. Conversely, Partner funding disruptions and/or a sustained decline in core earnings could result in negative ratings pressure. Finally, significant operational mis-steps which harm ECN’s franchise could have negative ratings implications.

Differentiating ECN from its financial company peers is its strong business model which generates a sizable component of recurrent revenues, providing some offset to the evolving impact of the coronavirus. Through its well managed core portfolio companies, including Service Finance, Triad, and Kessler, ECN originates and services prime credit quality unsecured and secured loans as well as provides credit card portfolio advisory and structuring services. The Company sells these originations, while retaining servicing, as well as provides its co-brand credit card advisory services to over 90 U.S. banks, credit unions and a life insurance company (the Partners). Overall, ECN’s three businesses are underpinned by seasoned management teams with deep industry knowledge and solid track records in navigating their businesses through a number of economic downturns, positioning ECN well for the current coronavirus pandemic. Overall, ECN, which primarily operates in the U.S., has approximately 570 employees.

ECN’s earnings performance over the last few years has been negatively impacted by a number of large charges and expenses related to the transformation of the Company to an asset-light balance sheet through the sale of its rail finance, aviation finance, and commercial & vendor finance businesses, and the subsequent purchases of its current core businesses, including the 2019 acquisition of the non-controlling interest in Kessler. Although the Company reported a net loss of $14.7 million in 2019, it was much improved from the $156.7 million net loss in 2018. Excluding one-time gains/losses associated with the disposal of legacy assets, investments, other one-time charges, as well as other non-cash expenses, ECN’s adjusted net income totalled $66.0 million in 2019, up from $37 million in 2018. The improved results were driven by 22% year-on-year increase in loan originations to $2.2 billion, an 8% increase in managed assets to $33.6 billion, along with the inclusion of Kessler’s first full year of operating results with ECN. Although, earnings potential has improved given the Company’s transformation is almost complete, near term improvements will likely be tempered by the evolving impact of the coronavirus on the U.S. economy.

The Company’s risk profile remains sound. DBRS Morningstar sees operational risk as ECN’s most significant risk, as credit risk has substantially declined, especially given the Company’s transformation to an asset-light balance sheet. ECN’s consumer businesses, including Service Finance and Triad have significant regulatory and compliance related oversight. Moreover, many of Service Finance and Triad’s Partners, as well as Kessler’s Partners are FDIC-insured institutions. DBRS Morningstar notes that a material operational issue, could harm ECN’s reputation and potentially result in its Partners disengaging from their relationships with the Company. That said, and providing comfort, ECN’s core companies have strong track records in operational risk management. Finally, credit performance remains sound, with ECN’s current credit risk primarily limited to Triad’s moderately sized floorplan business, Service Finance’s advances to select dealers, and Kessler’s support of customer marketing campaigns.

ECN’s funding needs remain modest with the Company’s originations being funded by over 90 Partners when the loan closes. As a back-up facility, ECN maintains a substantial $1.0 billion senior credit facility, should Partner funding disruptions occur, as well as to fund its operations. Finally, ECN’s capital position remains sound, especially given the lower risk profile of its balance sheet. At YE19, ECN’s cash flow leverage, or average debt to adjusted EBITDA ratio was a manageable 2.99x.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the Global Methodology for Rating Non-Bank Financial Institutions, 24 September 2019 (, and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers, 1 November 2019 (, which can be found on our website under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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