Investing.com -- On Tuesday, Fitch Ratings revised the outlook on the Long-Term Issuer Default Rating (IDR) of Marex Group Plc from stable to positive. The long-term IDR was affirmed at ’BBB-’, as was Marex’s long-term senior unsecured debt rating.

The change in outlook reflects the growing strength and diversification of Marex’s franchise. If this growth continues, it could lead to a more positive assessment of the company’s business profile. Combined with sound financial metrics and a risk control framework that keeps pace with the growth of the business, this could support an upgrade over the next one to two years.

Marex’s long-term IDR also reflects its growing earnings across variable market conditions and the expansion of its franchise organically and through bolt-on acquisitions. The company maintains an adequate buffer over regulatory capital requirements. The IDR also takes into account the increasing risk management demands of a progressively more complex business and the need to maintain a robust liquidity profile to support it.

Marex provides services across global energy, commodity and financial markets. These services include clearing, agency and execution, market-making, and hedging and investment solutions. The company’s scale is sufficient to attract clients who require counterparties with membership of all major market exchanges.

In 2024, Marex reported a revenue of USD1.6 billion, a rise of USD350 million from 2023. The company’s benchmark ratio for earnings and profitability improved to 34% from 28% in 2023. This strong performance was supported by both volume growth and the positive effects of higher-for-longer rates on interest income from cash balances held for liquidity.

At the end of 2024, Marex remained comfortably in compliance with capital requirements, with a total capital ratio under the Investment Firms Prudential (LON: PRU ) Regime of 234%, a slight improvement from 229% at the end of 2023. This was supported by strong earnings.

In October 2024, Marex issued USD600 million 6.404% senior unsecured notes maturing in November 2029. This increased the total senior unsecured debt to approximately USD930 million at the end of 2024 and enhanced funding diversification by source and maturity. Approximately 70% of Marex’s shares are now publicly traded, following two further public offerings since last year’s Nasdaq IPO.

Liquidity management is central to Marex’s business. The company maintains a buffer of unencumbered liquid assets and has access, at the group level, to a USD150 million revolving credit facility. Marex also undertakes a range of severe, but plausible, daily stress tests to ensure headroom on all foreseeable liquidity needs.

Marex’s activities are mainly client-driven. Client exposures are managed via regularly reviewed limits, margining procedures and defined risk appetite statements per business activity. Historically, Marex has had few material losses, but the growth of its business increases the sophistication of the associated risk management framework required. Fitch views the increased governance and reporting requirements stemming from the company’s 2024 listing as credit-positive.

Factors that could lead to a negative rating action or downgrade include a reduction in the regulatory total capital ratio to below 200% without a clear path to recovery, signs of deficiencies in Marex’s liquidity management framework, or evidence of a material increase in risk appetite. Inability to sustain recent franchise development could lead to a revision of the Outlook to Stable from Positive.

Factors that could lead to a positive rating action or upgrade include continued diversification and growth of Marex’s franchise, while maintaining robust regulatory capital buffers and an operating profit/average equity ratio consistently above 15%. This could lead to an upgrade over the next one to two years.

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