Fitch Ratings has revised Anima Holding S.p.A.'s (Anima) Outlook to Stable from Negative, while affirming the investment manager's Long-Term Issuer Default Rating (IDR) and senior unsecured long-term rating at 'BBB-'.

Anima is an Italian listed investment manager (IM) with EUR204 billion in assets under management (AuM) at end-2021. Retail clients account for 27% of AuM, while institutional mandates represent 26%. Class I insurance mandates, invested only in Italian sovereign debt, account for 46% of AuM, but only for a small portion of net fee income in 2021.

Key Rating Drivers

The Outlook revision primarily reflects a reduction in Anima's gross leverage (gross debt/EBITDA, excluding performance fees) to 2.8x at end-2021, within Fitch's 'BBB' range for IMs (1.5x to 3.0x) from around 3.8x in mid-2021. It also reflects Anima's credible commitment to principally use currently sizeable liquid assets (EUR685 million at end-2021 versus gross debt of EUR694 million) to fund debt repayment or EBITDA-accretive transactions. This should prevent gross leverage from increasing above 3x if adverse events affect its current fee-generating AUM base.

Anima's business profile is exposed to potential volatility in the Italian operating environment, where its client base and AuM are concentrated. Its retail franchise is wholly domestic and focuses on the lower end of the affluent market (liquid wealth between EUR75,000 and EUR150,000) and has registered cumulative net new money (NNM) outflows over the past four years.

The launch of new products and renewed marketing efforts resulted in modest retail NNM inflows during 2021 (EUR279 million). We expect this trend to continue in 2022, but the decreasing investable wealth of median Italian households and a likely increase in risk aversion weigh negatively on Fitch's long-term view of NNM flows. However, growth and acquisition of large institutional mandates has mitigated retail net outflows and also added diversity to distribution channels.

Anima is widening its distribution network (eg five new partner banks in 2021), but remains exposed to the ongoing consolidation of the Italian banking sector, which could reduce its distribution channels in the long term. These risks could stem in particular from Credit Agricole's acquisition of Credito Valtellinese (3% of Anima's AuM excl. Class I mandates) and from the eventual privatisation of Banca Monte dei Paschi di Siena (B/ Evolving; 14% of AuM excl. Class I mandates). However, Anima's distribution agreements provide sufficient short-term protection for the company. Fitch expects that any negative impact would materialise outside our Outlook horizon of 12 to 18 months, because any reorganisation at bank level will take precedence over the rationalisation of service providers, such as IMs.

Anima's liquidity profile is adequate and its bond issue in 2021 further lengthened the maturity of its debt. Its funding profile has sizeable bullet repayments in October 2024 (its remaining bank debt), October 2026 (EUR284 million) and April 2028 (EUR300 million). However, these are sufficiently long-dated and Anima's highly cash-generative business model also mitigates refinancing risk.

Anima's EBITDA margins have been consistently adequate (EBITDA/gross recurring fees of 23% in 2021), aided by a lean cost base. Over the longer term, we see some risk of margin compression in relation to the large retrocessions that Anima pays to its partner banks as distribution commissions (retrocessions account for about 70% of gross fees). Average net margins on AuM excluding Class I mandates have remained stable in the last five years at about 30bp.

The rating of Anima's senior unsecured debt is equalised with the company's Long-Term IDR, reflecting our expectation of average recoveries.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A positive rating action could stem from a cash-flow leverage ratio sustainably below 2.5x, in particular if in combination with improved retail NNM inflows, franchise resilience (via a more diversified distribution network) and profitability.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A gross debt/EBITDA ratio sustainably above 3x would lead to a downgrade. A notably higher net cash flow leverage (in particular if arising from outsized non-operational cash outflows such as dividend payments or share buy-backs) would also be credit-negative, especially if combined with continued high gross leverage.

Loss of distribution partners and inability to access alternative retail distribution channels (eg other banks, direct channels) could also put pressure on Anima's ratings.

Material and sustained NNM outflows could affect our assessment of Anima's franchise leading to rating pressure.

The rating of Anima's senior unsecured notes is primarily sensitive to a change in Anima's Long-Term IDR and additionally to changes in Fitch's recovery expectation, for instance the introduction of a more senior debt layer.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING ACTIONS

Entity / Debt

Rating

Prior

Anima Holding S.p.A.

LT IDR

BBB-

Affirmed

BBB-

ST IDR

F3

Affirmed

F3

senior unsecured

LT

BBB-

Affirmed

BBB-

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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