Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of National Consumer Cooperative Bank (NCB) and NCB, FSB to 'BBB' from 'A-' following the company's announcement that it violated a financial covenant in its revolving bank credit facility due to a $1.7 million impairment related to securities held from a prior securitization.
NCB has amended the bank facility to get relief from the covenant default; the new terms include liens on all assets of NCB, relief on some covenants, overall reduction in amount of facility to $225 million from $350 million and further reduction on a quarterly basis till maturity on Dec. 15, 2010. The ratings are removed from Rating Watch Negative, where they were place on Dec. 12, 2008, due to concerns of a possible covenant violation. Approximately $1.7 billion of debt is affected by this action. The Rating Outlook is Negative. A complete list of ratings is provided at the end of this release.
While Fitch's downgrade reflects the aforementioned covenant violation and amendment, it also incorporates weakening fundamental operating performance, which is likely to be sustained as well as more limited financial flexibility as future loan originations will need to be funded out of NCB, FSB through Federal Home Loan Bank advances and deposits. Fitch deems that NCB could receive funding through government programs such as Troubled Asset Relief Program (TARP), which could relieve some liquidity pressure. Fitch believes NCB's operating performance will continue to trend weaker due to the economic and capital markets environment, exhibiting itself in higher provision expenses, charge-offs, and funding costs over the near- to intermediate-term. While Fitch recognizes the membership structure is not designed to generate strong earnings and margins, nonetheless, Fitch believes it is still important to generate a modest and stable degree of profitability. Fitch is concerned with the trend in asset quality performance as non-performing loans increased to $17.4 million for the year ending 2008 versus $13.6 million for the comparable period in 2007. NCB is exposed to geographic and industry concentrations, as nearly 25% of its loans are secured by real-estate cooperatives in New York City.
The Negative Outlook reflects the weak economic environment, which could lead to further negative asset quality performance beyond current expectations, pressuring profitability through increased provisioning and potentially violating amended asset quality covenants in the revolving bank facility. Resolution of the Negative Rating Outlook is driven by stabilization of asset quality, improvement in earnings, and increased liquidity.
Fitch has withdrawn the company's commercial paper ratings as the program is no longer active and there are no outstandings.
Fitch has downgraded the following:
National Consumer Cooperative Bank
--Long-term IDR to 'BBB' from 'A-';
--Short-term IDR to 'F3' from 'F2';
--Commercial paper to 'F3' from 'F2';
--Individual to 'C' from 'B/C'.
Fitch has subsequently withdrawn the commercial paper rating.
NCB, FSB
--Long-term IDR to 'BBB' from 'A-';
--Short-term IDR to 'F3' from 'F2';
--Long-term deposit obligations to 'BBB+' from 'A';
--Short-term deposit obligations to 'F2' from 'F1'.
--Individual to 'C' from 'B/C'.
NCB Capital Trust I
--Trust preferred stock to 'BB+' from 'BBB+'.
Fitch also affirms the following:
National Consumer Cooperative Bank
--Support at '5';
--Support floor at 'NF'.
NCB, FSB
--Support at '1'.
In addition, Fitch has assigned the following rating:
National Consumer Cooperative Bank
--Senior secured debt assigned 'BBB'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
Peter Shimkus, 312-368-2063, Chicago
Vincent
Arscott, CFA, 212-908-0872, New York
or
Media Relations:
Sandro
Scenga, 212-908-0278, New York
Email: sandro.scenga@fitchratings.com