Weekly Downgrade Wrap-Up
As usual, we have a week's worth of ratings actions on the debt of sponsor-backed companies, via ratings agencies Standard & Poor's Ratings Services and Moody's Investors Service. A rare occurrence this week: S&P lowered its ratings on an actual private equity firm: American Capital, the BDC/buyout firm that's facing some creditor troubles, was downgraded to ‘B-'. No word on the progress of those creditor negotiations since the firm's earnings call earlier this month (which also provided no update). However, the firm did register to sell a $1.5 billion mixed-shelf offering on August 20. Company: American Capital Ltd. Sponsor: - Downgrade: S&P lowered the long-term counterparty credit rating on American Capital to 'B-' from 'BB-'. Highlights: "The rating action reflects the accelerated deterioration in the firm's realized earnings and reported leverage in second-quarter 2009, as well as the weakening performance of its portfolio companies. The firm's coverage of interest by realized earnings that are not dependent on investment exits declined significantly to 1.0x in the second quarter from 1.8x in the previous quarter and 2.9x for 2008. Moreover, while we had expected further portfolio depreciation, the unrealized write-downs in the second quarter, coupled with the slowdown in investment exits, has driven leverage to 2.3x--well above the 1.0x that had been required by covenants and is required for compliance with business development company (BDC) regulations."
