(This is a revision of a release issued earlier today. It corrects the IDR in the list of ratings at the end to reflect the downgrade of the IDR to ''BB''.) Fitch Ratings has downgraded CapitalSource Inc.''s (CSE) long-term Issuer Default Rating (IDR) to ''BB'' from ''BB+'' (see the listing of all ratings below). The Rating Outlook is Negative. This rating action affects approximately $1.4 billion of debt.
The ratings downgrade incorporates Fitch''s expectation for further portfolio asset quality deterioration and continued weak overall financial performance, which helped produce a net loss for the first six months of 2009 of $350.9 million. Based on economic conditions and the overall concentration in real-estate related assets, Fitch notes the potential for elevated levels of asset deterioration through 2010. Fitch believes the parent company''s overall liquidity profile and funding flexibility remain adequate but may be pressured if draws on committed funds are higher than anticipated or proceeds from asset sales or loan principal repayments are less than anticipated. In addition, while the overall entity has benefited from the diversification of funding provided by CapitalSource Bank, its commercial banking subsidiary that maintains 22 retail branch offices and $4.5 billion of retail deposits as of June 30, 2009, Fitch recognizes this benefit also comes with challenges, such as increased regulatory oversight and ongoing requirements to maintain capital levels above regulatory minimums. On June 30, 2009, the bank''s regulatory capital levels were in excess of required levels. CapitalSource Bank is required to maintain Tier I leverage at 5% (actual = 12.46%), Tier I risk based capital at 6% (actual = 15.51%) and total risk based capital at 15% (actual = 16.77%). In addition, the California Department of Financial Institutions requires the bank to maintain tangible equity to tangible asset of 10% (actual = 12.49%).
Fitch acknowledges that near-term refinancing risks have been alleviated due to the company''s extension of its debt maturities over the past year. Furthermore, amendment of the interest coverage and other financial covenants as well as any structural or pricing changes in the facility provide sufficient headroom under the near-term operating environment.
Based on the payment priority rights imbedded within CSE''s existing debt at the parent company, senior creditors are in a considerably more favorable position than subordinated creditors in the event of liquidation, which is reflected in the notching of the subordinated convertible debt.
Based in Chevy Chase, MD, CSE is a specialized commercial finance company that provides a broad array of financial products, including senior secured asset-based and cash flow loans, first mortgage, mezzanine loans and sale lease-back financing to small- and medium-sized businesses with annual revenues ranging from $5 million-$500 million. The company operates in three business segments, Commercial Lending through CapitalSource Bank, Healthcare Net Lease, and Other Commercial Finance.
Fitch has downgraded the following CapitalSource Inc. ratings:
--IDR to ''BB'' from ''BB+'';
--Senior Secured Bank Facility Rating to ''BB'' from ''BBB-'';
--Senior Subordinated to ''B'' from ''BB-''.
The Rating Outlook is Negative.
Additional information is available at ''www.fitchratings.com''.
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