OREANDA-NEWS. Fitch Ratings has downgraded Teller A/S's (Teller) Long-term Issuer Default Rating (IDR) to 'BB' from 'BB+'. The Outlook has been revised to Negative from Stable.

Following completion of the merger of Teller AS into Teller, the ratings of Teller AS have been withdrawn. A full list of rating actions is available at the end of this commentary.

KEY RATING DRIVERS - IDR
The downgrade reflects Fitch's expectation that capital management for Teller will increasingly be transferred to its parent, Nets Holding A/S. While this does not reduce the capitalisation of the overall group, Fitch believes it may leave capital at Teller, which is the only entity in the group that is publicly rated by Fitch, very thin for the current rating level.

The Negative Outlook reflects a negative trajectory for capitalisation and our belief that the absolute amount of capital may remain low going forward.

Teller is subject to regulatory capital requirements, which it has historically exceeded by a wide margin. The relatively small amount of capital limits rating upside potential, and should capital reduce significantly, it would only leave a minimal buffer for unexpected shocks without the need for capital injections from the parent.

The ratings also reflect Teller's monoline business model in Nordic merchant acquiring of international payment cards and potentially large exposures to operational risk. These risks are mitigated by its leading franchises in its business niche, the absence of debt, its strong liquidity management and small historical credit losses.

A key risk for Teller is the potential need to bridge a liquidity gap that could be caused by a major operational event, such as a system failure, which would delay payments from credit card issuers. However, Fitch believes such a scenario is unlikely and the risk is mitigated by a strong track record in managing operational risk and significant holdings of cash.

Credit risk can stem from both fraud and default of a merchant. Losses have consistently remained at low levels and are comfortably absorbed by earnings. However, should a significant portion of capital be up-streamed to the Nets group, this would leave Teller more exposed to losses materially affecting capitalisation. Fitch expects that Teller will maintain prudent underwriting standards and strict risk controls, particularly for its high-risk customers with large pre-payments of goods and/or services.

RATING SENSITIVITIES - IDRs
Teller's monoline business model and small capital base limit rating upside potential. A downgrade of the Long-term IDR would most likely be a result of a transfer of a sizeable portion of excess capital over regulatory requirements to the holding company, with future profits also being up-streamed to the group; this is reflected in the Negative Outlook.

Significant increases in Teller's risk appetite through less strict large exposure limits, less prudent liquidity management or expansion into higher-risk markets would also be rating-negative.

A revision of the Outlook to Stable from Negative would be contingent on a commitment to rebuild capital to provide a larger buffer for unexpected shocks, including large frauds or losses from some of its largest customers.

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING
Teller's Support Rating has been downgraded to '5', reflecting Fitch's expectation that while support might be possible from Nets Holding A/S, and in turn from the ultimate shareholders, it cannot be relied upon following the sale of Nets Holding A/S to a private equity consortium.

Fitch has subsequently withdrawn the Support Rating as it is no longer viewed as relevant to the agency's coverage.

The rating actions are as follows:
Teller A/S
Long-term IDR: downgraded to 'BB' from 'BB+'; Outlook Revised to Negative from Stable
Short-term IDR: affirmed at 'B'
Support Rating: downgraded to '5' from '3' and withdrawn

Teller AS
Long-term IDR: withdrawn
Short-term IDR: withdrawn
Support Rating: withdrawn.