Fitch Ratings has downgraded the long-term Issuer Default Ratings (IDRs) of Central Pacific Financial Corp. (CPF) and its bank subsidiary Central Pacific Bank to 'CCC' and 'B', respectively. The ratings have also been removed from Rating Watch Negative where they were placed on June 26, 2009. The Rating Outlook for Central Pacific Bank is Negative.
The downgrade reflects the continued credit stress at CPF and the heightened risk of dividend deferral on its hybrid securities following the announcement by management that the company is postponing its public stock offering. Due to the current financial condition of the holding company and its limited access to alternative liquidity sources without regulatory approval, Fitch believes deferral could be imminent. With the postponement of the previously announced public stock offering, Fitch believes the company will be unable to the raise necessary funds in the near-term to bolster its financial resources at the holding company, and CPF will have to defer dividend payments on its preferred and trust preferred securities. The two notch differential between the holding company IDR and the IDR of its bank subsidiary reflects the holding company's liquidity challenges.
Beyond the near-term liquidity concerns of the holding company, which is the primary driver for the notching between the bank subsidiary and the holding company, the rating action reflects Fitch's view that CPF will continue to endure increased credit stress in its Hawaii portfolio, as well as in its still sizeable exposure to California commercial real estate. As anticipated, both portfolios have weakened, causing CPF to report a significant loss for the second quarter of 2009, and Fitch anticipates higher loss rates from these portfolios in the future. Further, Fitch believes that CPF needs to bolster its capital base in order to absorb expected higher losses, provide needed liquidity at the parent company, as well as remain in compliance with the enhanced regulatory capital requirements. Due to existing regulatory agreements, Central Pacific Bank is required to maintain enhanced capital levels to be considered well-capitalized, specifically by maintaining a leverage ratio of 9%.
The Negative Outlook at the bank subsidiary reflects the prospect of more pronounced credit deterioration than currently anticipated, in either the mainland commercial real estate book, or more notably, the Hawaii portfolio. Conversely, successful capital raising efforts, which augment CPF's capital base and its holding company liquidity position, could have positive rating implications.
Fitch assigns recovery ratings to individual security issues where the IDR of the issuer is rated in the 'B' or below category. As such, Fitch has assigned a Recovery Rating (RR) of 'RR3' to the uninsured long-term deposits of Central Pacific Bank, which implies a recovery between 51% - 70% on these instruments in the event of failure or default by the issuer, and a 'RR6' to the preferred and trust preferred securities of CPF, which implies recovery between 0%-10%.
CPF is a $5.5 billion banking company headquartered in Honolulu, HI. CPF provides a full range of traditional commercial consumer and banking services. Through its bank subsidiary, Central Pacific Bank, the company operates 39 branches throughout Hawaii.
Fitch has taken the following rating actions:
Central Pacific Financial Corp.
--Long-term IDR downgraded to 'CCC' from 'B';
--Short-term IDR downgraded to 'C' from 'B';
--Individual downgraded to 'E' from 'D/E';
--Preferred Stock affirmed at 'CC/RR6';
--Support affirmed at 5;
--Support Floor affirmed at No Floor.
Central Pacific Bank
--Long-term IDR downgraded to 'B' from 'BB-';
--Long-term Deposit downgraded to 'B+/RR3' from 'BB';
--Individual downgraded to 'D/E' from 'D';
--Short-term IDR affirmed at 'B';
--Short-term Deposit affirmed at 'B';
--Support affirmed at 5;
--Support Floor affirmed at No Floor.
CPB Capital Trust I, II, & IV
CPB Statutory Trust III & V
--Trust Preferred Securities affirmed at 'CC/RR6'.
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, New York
Ken Ritz, +1-212-908-0368
Sharon Haas,
+1-212-908-0362
Brian Bertsch, +1-212-908-0549 (Media Relations)
brian.bertsch@fitchratings.com