Ratings of American Capital Ltd. (ACAS) have been downgraded by Fitch Ratings on Tuesday following its debt restructuring. Fitch has lowered issuer default and senior unsecured debt ratings of American Capital to “RD” – restricted default.
The RD rating implies that the issuer has suffered an uncured default payment on a material financial obligation but has avoided bankruptcy filings, receivership, liquidation or any such termination procedures and has not otherwise closed down its business. According to Fitch, the debt exchange was coercive, given the fact that there was a bankruptcy threat if the bondholders did not approve the exchange.
Based on the debt exchange terms and the American Capital’s prospects after the restructure, Fitch has assigned a “B+” issuer default rating, reflecting a significant risk of default backed by restrictive safety margin. The rating agency has also assigned a senior secured debt rating of “BB/RR2” and a senior unsecured debt rating of “B-/RR6.” The rating outlook is “stable.”
Earlier this week, American Capital announced that it has accomplished the restructuring of its $2.4 billion of debt. The restructuring involved the change of its line of credit into a term loan facility and an exchange or repayment of its outstanding public and private notes. This led to a debt reduction of $1.03 billion for the company.
According to Fitch, the limited accessibility of American Capital to the capital markets was a major reason for such ratings. For the company, the current source of liquidity includes interest and dividend income, principal repayment of debt investments and sale of portfolio investments. The rating also reflects that the company may also be required to sell portfolio assets for satisfying debt obligations.
The restructuring provides American Capital with sufficient operating flexibility. It has also prevented the company from filing for bankruptcy, which management had earlier cautioned about. However, the company’s limited access to capital and increased funding costs have weakened its strategic position in its sector.
Read the full analyst report on “ACAS”
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