OREANDA-NEWS. S&P Global Ratings has affirmed its overall STRONG ranking on GFKL Financial Services GmbH (GFKL) as a special servicer of unsecured credits in Germany. The outlook is stable.

GFKL is a group of nine companies (including the holding company), working from several servicer centers, of which the largest ones are located in Essen and Dusseldorf. Six subsidiaries provide special servicing activities on different kinds of credits and share senior management, supporting functions, and IT platforms, while applying credit-specific workflows. Two more subsidiaries compose a service hub providing mailing, archive, and data analysis service to the servicing operations of the group.

In 2015, a private equity firm acquired GFKL and Lowell Group, another U. K. servicer, to create a European group providing special servicing of unsecured credits. Although the former CEO of GFKL moved to the supervisory board of GFKL as chairman following the purchase, the management team in Germany remained widely unaffected and this has guaranteed continuity in the management of the German operations.

Our ranking reflects our assessment of GFKL's operations based on the major ranking factors in our criteria and relies on the analysis of the two most significant subsidiaries: Proceed Collection Services GmbH (PCS) and Sirius Inkasso GmbH (SIR) (see "Related Criteria").

MAJOR RANKING FACTORS

As of June 2016, GFKL's overall portfolio accounts for €16 billion of gross book value, up from €15 billion at the end of 2014. The total amount of PCS and SIR loans increased to €12.4 billion and €1.127 billion from €11.78 billion and €0.99 billion, respectively, over the same period. The servicer is the third player in the German market and aims to become the first by acquiring new platforms and new clients, and increasing the flow from outstanding clients. Since 2016, GFKL is fully specialized in special servicing of unsecured credits in Germany after selling the Spanish branch and the German subsidiary working on secured loans. Since the ownership change, the new European executive team is working on a common plan across businesses in Europe. Nonetheless, there have been no major changes in the German operations and the servicer confirmed that it is not expecting any in the foreseeable future. GFKL reinforced the supporting functions, such as operations and internal controls, and has further integrated the systems and procedures used by the core subsidiaries such as PCS and SIR. Finally, GFKL recorded positive and stable results as a special servicer of diverse portfolios of unsecured credits. The group reports a well-designed human resources function but the track record for ongoing training is lower than the market average. In our view, the staff's experience and the low turnover rate partially counterbalance this so there shouldn't be any immediate impact on the quality of the operations. Nonetheless, we will closely monitor the evolution of this activity and the potential embedded risk. OUTLOOK

The outlook is stable on our rankings on GFKL as a special servicer of unsecured credits in Germany. The servicer has reliable operations supported by a solid service hub and IT system.

MANAGEMENT AND ORGANIZATION

We have affirmed our STRONG subranking for management and organization on GFKL as a special servicer of unsecured credits in Germany. In our opinion, the servicer has a governance model that assigns separate responsibilities at the subsidiary, German group, and European holding levels. Roles and functions are clearly defined and there are several official meetings to help communicate relevant information, both top-down as well as bottom-up. The internal control system has been recently reinforced. Finally, since 2015, the four companies working on core assets apply the same version of the receivable management system and this will make continuous enhancement more efficient.

LOAN ADMINISTRATION

We have affirmed our STRONG subranking for loan administration on GFKL as a special servicer of unsecured credits in Germany. GFKL manages a great variety and amount of unsecured debt, from defaulted loans to unpaid receivables and bills through six subsidiaries. During the years, it has reported positive collection results. Over the last four years it consolidated the operative models across the servicing subsidiaries. As a result, four out of the six servicing subsidiaries share best practice and technology whenever appropriate to leverage synergies. This renders any future improvements more cost effective. The remaining two companies manage a marginal portion of the overall portfolio and the different nature of the credits under management makes it inefficient to change their workflows. GFKL has a central internal mailing and archive center, which leverages economies of scale.

FINANCIAL POSITION

We consider GFKL's financial position to be SUFFICIENT. We have based this outcome on our assessment of the company's financial statements from 2012 to 2015, as well as its projections for 2016.