(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)