KBRA Affirms Rating for Computershare Trust Company, N.A.

KBRA affirms the issuer rating of A- for Computershare Trust Company, N.A (CTCNA), headquartered in Canton, MA. The Outlook for the rating is Stable.

Key Credit Considerations

As one of the top providers of corporate trust services in the U.S., CTCNA has a highly diversified business model with a broad product/service offering and low concentration risk. CTCNA successfully managed the integration of Wells Fargo Corporate Trust Services, acquired in November 2021, including the realization of synergies within the larger group, the retention of key personnel, and maintaining leading market position. CTCNA expects to realize further synergies as a result of continual process optimization. The company’s fee driven business model focuses on EBITDA growth and resiliency. CTCNA benefits from relatively stable, capital light, and recurring fee-based revenue streams. The vast majority of revenues are derived from trust and custody fees driven by sizeable third-party assets under custody and administration (AUA). Over the last three years, the company has benefited from higher interest rate environment which is reflected in substantial margin income. CTCNA’s business model is generally low risk with key risk stemming from operational activities. Key CTCNA staff provide solid institutional knowledge and deep relationships with clients, vendors, and regulators. Leverage and coverage are expected to remain at very conservative levels over the medium term, recognizing that there can be some variability in EBITDA. CTCNA’s balance sheet strength, with sizeable cash levels, and a large amount of equity capital and no debt, enhances its credit profile. KBRA considers CTCNA’s equity level as conservative in the context of the institution’s risk profile.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the next one to two-year time frame. Over the longer term, there is potential for upward rating momentum if management achieves additional AUA growth and diversification while maintaining conservative leverage metrics. In the event of an unforeseen decline in AUA or other financial issues which result in lower fee generation and cash flow, pressure on the rating could ensue. That said, KBRA recognizes the resiliency of trustee and custodian operations compared with many other types of financial institutions. Materially higher-than-expected leverage could also negatively affect the rating.

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