KBRA Affirms Rating for ECN Capital Corporation and Revises Outlook to Stable

19 Dec 2024   |   New York

Contacts

KBRA affirms the issuer rating of BB+ for ECN Capital Corporation (TSX: ECN or “the company”), a financing company with headquarters in Florida and Toronto. The Outlook has been revised to Stable from Negative.

Key Credit Considerations

While ECN’s operating scale and business scope decreased following the sale of Service Finance Company and the Kessler Group in recent years, ECN has secured a solid and growing competitive position in the manufactured housing segment via its Triad business, as well as a growing presence in RV and marine finance. The rating considers ECN’s renewed strategy focused on a simpler business model centered on these core businesses, the realignment of corporate functions within Triad, and its seasoned leadership team. Following financial challenges in 2022 and 2023, earnings have since rebounded and were positive through 9M24. Strengthening financial performance reflects the benefits of management’s focused business strategy combined with improved market conditions including recent declines in interest rates. Moreover, management has focused on improving its interest rate risk management by reducing its liability sensitivity and through the implementation of interest rate locks at loan approval for its land home product. Future periods are also expected to benefit from the completion of ECN’s Corporate Simplification Plan in 2025, which is anticipated to yield $5.5 million to $6.5 million in annual cost savings. The rating also takes into account the improvement in leverage metrics (debt-to-equity of 2.8x at September 30, 2024) following debt repayment after a material increase in 2022. Meanwhile, ECN has expanded funding sources supporting Triad’s growth via a partnership with Blackstone’s Asset-Based Finance Group that was recently upsized and adding new institutional partners. The rating considers ECN’s adequate liquidity and strong asset quality metrics, supported by robust underwriting standards and a comprehensive risk management framework. The rating remains constrained by exposure to overall economic conditions in North America and inherent industry related risks, including industry-specific downturns.

Rating Sensitivities

While a rating upgrade is not expected over the near-term, upward rating momentum could be achieved over time if there is continued growth of core businesses with sustained earnings improvement, combined with the maintenance of more conservative leverage metrics, and solid credit quality. The Outlook could revert to Negative, or the ratings could be downgraded, if there is prolonged earnings underperformance, elevated leverage, or deterioration in asset quality metrics.

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Methodologies

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1007289

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