The Fitch Ratings Finance and Leasing Group analyzes the commercial finance and leasing industry using a set of four core metrics: asset growth, asset quality, profitability and capitalization/leverage. The foundation of the Fitch Ratings approach is a thorough evaluation of the quantitative and qualitative factors that affect an issuer's credit strength. The group gives specific attention to the level of profitability, as well as the earnings quality and consistency of a commercial finance or leasing company, believing that both factors are important drivers in such a company's ability to service principal and interest and in its ability to attract additional debt and equity to fund growth.
Coverage
The group's rating methodology is comprised of the following qualitative factors:
> the business of the entity in question
> the objective of its management
> the environment in which it operates
> the future development of its business
The commercial finance industry is fragmented, with commercial banks, finance companies, and other financial service firms competing in one or more segments. Finance companies fall within one of three segments based on customer quality:
> high-end, dominated by commercial banks
> middle-market, core of the commercial finance industry
> low-end, fragmented with numerous local finance companies
The analysis of leasing companies details the following credit considerations:
> residual assumptions and realizations
> equipment remarketing expertise
> income recognition
> operating cash flow
