DBRS, Inc. (DBRS Morningstar) confirmed the ratings of Computershare Trust Company, National Association (CTCNA or the Company), including the Company’s Long-Term Issuer Rating of BBB. The trend on all 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
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. 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 November 2021 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 would 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.
CPU has chosen to wholly-own CTCNA, and to manage this subsidiary’s capital and liquidity needs internally. CTCNA has exceeded expectations in terms of profitability, and was a significant contributor to the better than expected FY22 performance of CPU, and the improved outlook for 2023. CPU acquired CTS through CTCNA in November 2021. While CTCNA originally had 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 $39 billion in total average client balances in the second half of fiscal year 2022 (2HFY22), with an additional $47 billion of money market funds managed by CTS. These were up from $19 billion firmwide for CPU prior to the acquisition.
DBRS Morningstar notes that CPU has been highly acquisitive, including multiple carve-out deals of other financial institutions, with a long, successful track record of integrating these deals. Nonetheless, the acquisition of CTS increased operational risk, and at FYE22 CPU continued to work to fully separate from Wells Fargo while retaining clients and employees. The integration included a two-year transitional services agreement (TSA) to cover various infrastructure, administrative, and support services that continues through this year. Additionally, CPU has maintained CTS’ executive management team and other key personnel.
In FY 2022, CTCNA generated $336 million in total revenue, or more than double the amount prior to the CTS acquisition. The acquisition was the main driver of FY22 (ended 6/30/22) profitability, with management EBIT up 19% over FY21 on the 12% increase in total revenues (due mainly to CTS) and higher margin income on rising rates. Recurring revenues comprise the majority of CTCNA's total revenues, with a large part of these consisting of long-term contracts that provide stable revenue over time. Besides adding significant market shares to existing product lines, CTS has also deepened CTCNA’s overall product set.
As a trust company, CTCNA takes little credit risk, but is exposed to operational risk in its businesses. CTCNA is subject to market trends and business cycles, and its largely digital platforms are subject to data privacy risks and cybercrime. CTCNA contributed significant levels of new client balances to CPU, and has enhanced sources of liquidity, while CPU’s overall business is highly cash-generative, with relatively low capex, while business volumes are a main determinant of cash generation levels. Fee margins are relatively low, but the normalization of interest rate levels is a driver of increased liquidity with limited risks due to higher margin income.
CTCNA is highly regulated as a licensed non-deposit taking Trust Company in the U.S., with the OCC as its primary regulator. CTCNA relies on the capital strength of CPU to support ongoing capital needs.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022)
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 23, 2022): https://www.dbrsmorningstar.com/research/398693/dbrs-morningstar-publishes-updated-global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support https://www.dbrsmorningstar.com/research/394683 (April 4, 2022). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors.
The primary sources of information used for this rating include Morningstar Inc. and 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.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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