March 1, 2012 / 4:06 PM / 5 years ago

TEXT-S&P affirms FCC Holdings 'CCC' ratings

 (The following statement was released by the rating agency)	
 March 1 - Overview	
  -- We expect FCC Holdings to finalize a deal with its unsecured creditors 	
by the end of March to modify certain covenants on its unsecured debt, 	
allowing the company to remain in compliance for the quarter ended Dec. 31, 	
2011. 	
  -- We are affirming our ratings on FCC Holdings, including its 'CCC' 	
long-term issuer credit rating, and removing the ratings from CreditWatch 	
negative. 	
  -- The outlook is stable, reflecting our expectation that the company 	
will maintain compliance with all debt covenants in 2012 and continue to exit 	
loans collateralized by non-core collateral.	
Rating Action	
On March 1, 2012, Standard & Poor's Ratings Services affirmed its ratings on 	
FCC Holdings LLC (First Capital), including its  'CCC' long-term issuer credit 	
rating. At the same time, we removed the ratings from CreditWatch, where they 	
were placed with negative implications on Nov. 4, 2011. The outlook is stable.	
Rationale	
This rating action reflects our expectation that First Capital will finalize a 	
deal with its unsecured creditors by the end of March to modify certain 	
covenants on its unsecured debt, allowing the company to remain in compliance 	
for the quarter ended Dec. 31, 2011. First Capital anticipates taking an 	
outsized provision for loan losses in the fourth quarter of 2011. The 	
associated net loss would have triggered covenant violations, necessitating 	
this agreement.  (Its senior secured credit facilities were previously amended 	
on Feb. 10, 2012, with all lenders agreeing to waive compliance with certain 	
financial covenants.) 	
	
In particular, we expect the company's unsecured debt holders to agree to 	
modify a $160 million tangible net worth covenant to $115 million at year-end 	
2011, a level we expect First Capital to meet. (The amended tangible net worth 	
covenant will increase each year to as high as $145 million in 2015.) First 	
Capital is expected to repurchase $10 million of its $100 million unsecured 	
debt and pay a higher interest rate as part of the deal. In addition, the 	
company's shareholders will inject equity and purchase a portion of its 	
outstanding unsecured debt as well. 	
	
We believe that the agreement will allow First Capital to maintain compliance 	
with all debt covenants in 2012 and continue to exit loans collateralized by 	
non-core collateral, including equipment and recurring monthly revenue 	
contracts. Nevertheless, the rating reflects numerous challenges that we 	
believe First Capital will face over the medium-term. This includes ensuring 	
that credit has stabilized and that problem credits remain concentrated in its 	
non-core loan portfolio, and maintaining adequate access to funding for new 	
originations (certain senior secured lenders reduced their commitment levels 	
in conjunction with the covenant waiver). Also, we believe that profitability 	
will also continue to be a challenge. First Capital's modest profitability 	
leaves limited flexibility for another material decline in asset quality, as 	
shown by the events of 2011. Moreover, while we expect unsecured debt 	
covenants to be loosened per the agreement with debt holders, the new covenant 	
levels will remain somewhat constrictive, in our view.	
Outlook	
Our stable outlook reflects our expectation that that the company will 	
maintain compliance with all debt covenants in 2012 and continue to exit loans 	
collateralized by non-core collateral. We do not expect the company to breach 	
the newly modified tangible net worth covenant in 2012, although its capital 	
will likely only be modestly higher than the required level for much of the 	
year. We could downgrade the rating if we believe that this or other covenants 	
might be violated, or if the company is unable to renew or add to its senior 	
secured funding, a significant portion of which matures in 2013. We could 	
upgrade the rating if First Capital can demonstrate stabilized asset quality, 	
build capital in excess of covenant levels, and add to or extend the 	
maturities on its senior secured credit facilities.	
	
Related Criteria And Research	
  -- FCC Holdings LLC Downgraded To 'CCC' On Expected Credit Impairments; 	
Ratings Remain On CreditWatch Negative, Dec. 22, 2011	
  -- Rating Finance Companies, March 18, 2004	
	
Ratings List	
	
Ratings Affirmed; CreditWatch/Outlook Action	
                                     To                 From	
FCC Holdings LLC	
 Counterparty Credit Rating             CCC/Stable/--      CCC/Watch Neg/--	
 Senior Unsecured                       CCC                CCC/Watch Neg	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.	
	
 (New York Ratings Team)	
 

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