DBRS, Inc. (DBRS Morningstar) has assigned a Long-Term Issuer Rating of BBB and Short-Term Issuer Rating of R-2 (middle) to Computershare Trust Company, National Association (CTCNA or the Company). The trend on the ratings is Stable. The Support Assessment (SA) is SA1, which reflects the implied strong support from its parent, Computershare Limited (CPU or the Parent), if required.
KEY RATING CONSIDERATIONS
As a supported rating with a SA1 designation, the Company’s ratings would typically move in tandem with the Parent’s Long-Term Issuer Rating. DBRS Morningstar considers CTCNA’s growing importance within CPU’s global franchise, particularly given its recent acquisition of Wells Fargo’s Corporate Trust Services business (CTS). In addition, DBRS Morningstar considers CTCNA as highly integrated with CPU from an operational and strategic perspective. As such, DBRS Morningstar strongly believes that CPU is willing to fulfill the obligations of CTCNA.
An upgrade of CTCNA’s ratings would be linked to improvement in the Parent’s long-term ratings. Conversely, a ratings downgrade of CPU would result in a downgrade to CTCNA’s ratings. In addition, any indication of a reduced ability or willingness to support CTCNA by CPU would result in a downgrade of the Company’s ratings.
CTCNA is a wholly owned subsidiary of CPU, a global market leader in transfer agency and share registration, employee equity plan administration, proxy solicitation and stakeholder communications. CPU acquired CTS through CTCNA in November 2021 for a total acquisition price of $750 million. While Computershare Corporate Trust Services has a dominant market share position in Canada, its presence in the U.S. had been relatively modest. With the acquisition of CTS, the combined business has a top four position in the U.S. Corporate Trust market and more than $69 billion in client balances (up from $1.2 billion on a standalone basis). In FY20, CTS generated nearly $410 million in total revenue, a material uplift compared to CTCNA on a standalone basis.
DBRS Morningstar notes that the Parent has been highly acquisitive, including multiple carve-out deals of other financial institutions, and has a long, successful track record of integrating these deals. Nonetheless, the acquisition of CTS is the largest yet, increasing operational risk. Mitigating this concern, the integration includes a two-year transitional services agreement (TSA) to cover various infrastructure, administrative and support services. Additionally, CPU intends to maintain CTS’ executive management team and other key personnel. We also view favorably the long-term contracts that provide stable revenue over time. Of note, CTS’ top 10 clients have a weighted average length of relationship of 20 years, evidencing deep and reliable relationships.
As a trust bank, CTCNA takes little credit risk, but is exposed to operational risk in its businesses. Similarly, the CTS acquisition is also a lower risk, balance sheet-light business with little credit risk. Besides adding significant market shares to existing product lines, CTS also deepens CTCNA’s overall product set.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021): https://www.dbrsmorningstar.com/research/379424/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support.
The primary sources of information used for this rating include Company Documents. 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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