S&P: Local Initiatives Support Corporation, NY Assigned 'AA' Issuer Credit Rating
"We view the corporation's diverse asset base and minimal loss exposure as key credit strengths," said S&P Global Ratings credit analyst Mikiyon Alexander.
The rating reflects our view of LISC's: Diverse and ongoing growth in its asset base over the past five years;Minimal loss exposure, which can be absorbed through LISC's reserves and unrestricted equity; Strong history of loan performance and underwriting guidelines; Low-risk debt profile for diverse lending platform with prudent reserve guidelines;Consistent profitability and total-equity-to-total-assets ratio; Experienced and prudent management; Percentage of loans that are enhanced with federal grants and credit enhancement for guaranteed payments. Offsetting the above-mentioned strengths, in our view, are these weaknesses: Exposure to a balance of unenhanced loans that is, however, in our view, comparable with that of its industry peers; Susceptibility to year-over-year government grants that may not be reoccurring from one year to the next; andInvestment policy that gives the organization the framework to invest in what we believe could be risky investments for a significant portion of its assets. The stable outlook reflects our view of LISC's growing assets base and consistent profitability as well as its high-performing loans. In addition, the corporation has experienced minimal loan loss exposure, and has more than sufficient equity to cover potential losses. LISC has maintained steady net income amid low returns on low-risk investments, and it has weathered economic and real estate crises spanning a decade of operations in its current form. The stable outlook also reflects the fact that it would take several years of lower-than-expected grants and high loan losses year over year to erode LISC's strong equity base. However, significantly reduced capital adequacy caused by increased debt and declining loan performance could impede LISC's leveraged capacity (assuming assets and returns on assets do not rise proportionately) and lead to a negative rating action. Loan deterioration, or a significant decline in government grant income that comprises a substantial portion of net income, could also result in a lower rating.