(The following statement was released by the rating agency)
BARCELONA/LONDON, July 19 (Fitch) Fitch Ratings has affirmed Intermediate
Capital Group PLC's (ICG) Long-term Issuer Default Rating (IDR) at 'BBB-' with a
ICG is a leading provider of European mezzanine and leveraged loan finance and
asset management. The affirmation of ICG's IDR with a Stable Outlook reflects
Fitch's expectation that ICG will continue to maintain its leverage (measured as
net debt/tangible equity) below 1x on a sustained basis, which the agency
considers commensurate for an investment grade rating given the company's risk
profile. The rating action also takes into account the fact that the company has
reduced the average size of its co-investments alongside its funds, and the
expectation of further diversification into lower risk funds/investments. Fitch
expects that further development of its fund management activities will provide
more predictable fee income and support profitability.
KEY RATING DRIVERS
ICG's IDR is driven by its solid franchise and profitability and an expectation
that leverage will be contained at a low level.
While FY13 saw a marked 42.6% drop in profit before tax, due particularly to it
being a poor vintage year for realisations, Fitch views this as an exception and
anticipates relatively stable performance in the medium term. Earnings will be
supported by locked-in fees related to funds raised. Fitch expects that the
positive upward trend in third party funds under management (FuM) will continue.
In FY13, ICG raised EUR2.3bn in FuM (EUR560m in Q114). This, in conjunction with
solid realisations year to date in FY14 (GBP433m of cash inflows in Q114),
supported by portfolio companies refinancing on the back of increased
availability of debt, may allow for a further reduction in leverage, from an
acceptable level of 0.7x at FYE13, and well below its peak of 2.6x at FYE09.
The rating also reflects the asset portfolio's inherent risk profile, ICG's
reliance on wholesale funding and dependence on wider market performance.
Despite exposure to a portfolio of leveraged assets, Fitch anticipates that
provisions will remain close to the historical 2.5% average of total portfolio
size, which should be helped by adequate provisioning on pre-crisis investments
and the fact that post-crisis investments have generally displayed stronger
Following realisations year to date in FY14, which included five of its top-20
assets in Q114 and a GBP58m repayment related to its investment in BAA since,
pro-forma gross debt is expected to be well below GBP1bn, down from GBP1.1bn at
FYE13. Refinancing of banking facilities, as well as a second retail bond and
private placements, have resulted in a comfortable debt-maturity profile, with
the next material refinancing spike not until FY17.
Management's target to obtain a more even split of revenues between balance
sheet investment-related activity and its fund management business should
contribute to cash flow stability. The final close of both the Europe Fund V and
Longbow Fund at their hard caps and a further close on its direct lending
product Senior Debt Partners are examples of ICG's fund raising capacity, which
is further supported by an expanded in-house distribution team.
The ratings may be downgraded if ICG fails to contain its leverage at a
conservative level on a sustained basis, reports a material fall in fund
management fees and suffers from weak performance in its asset portfolio, as
reflected for example by portfolio companies' heightened provisions and
Upside rating potential is currently limited but the rating would benefit from a
further rebalancing of the earnings profile towards stable fund management
company fee income and evidence of a related reduction in balance sheet risk.
Fitch would also view positively continued evidence of its ability to raise
funding across an increasingly diversified product suite, together with a
prudent approach towards co-investments and strong performance of its asset
portfolio. The latter would be reflected by prudent leverage, limited
impairments and successful refinancing of the entities in which ICG has
Erwin van Lumich
+34 93 323 8403
Fitch Ratings Espana, S.A.U.
Paseo de Gracia, 85 7th Floor
+44 20 3530 1494
Olivia Perney Guillot
+ 33 1 44 29 91 74
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email:
Additional information is available on www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15
August 2012; 'Investment Manager and Alternative Funds Criteria', dated 17
December 2012, 'Evaluating Corporate Governance', dated 12 December 2012, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Evaluating Corporate Governance
Global Financial Institutions Rating Criteria
Investment Manager and Alternative Funds Criteria
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