CHICAGO--()--Fitch Ratings has downgraded the Issuer Default Ratings (IDR) of Citadel Kensington Global Strategies Fund Ltd and Citadel Wellington LLC to 'BBB-' from 'BBB'. The outstanding senior debt of Citadel Finance Ltd is also downgraded to 'BBB-' from 'BBB'. The ratings have been removed from Rating Watch Negative and assigned a Negative Rating Outlook.
The ratings are downgraded due to reductions in capital given negative performance in the second half of 2008 and reduced financial flexibility of the funds. Asset valuations were severely impacted by the massive liquidity drawdown in the capital markets globally. Certain strategies, including convertible arbitrage, suffered reduced liquidity in those strategies which limited the ability to trade around positions. Redemption requests have been higher than the Funds' historical experience, however; management has protected counterparties and bondholders by deferring redemption requests and allowing a rebalancing of fund positions. Substantial progress has been made in reducing and rebalancing the risk of the funds.
Management has reduced leverage and risk exposures have been eliminated that either contributed to losses or were no longer considered core to the fund strategies. The diversification of funding sources and longer term nature of funding agreements positively impacted these efforts. While fund liquidity declined, debt and counterparty payments have been and continue to be met on a timely basis. Debt has been substantially reduced including a reduction in the medium-term notes. The ratings remain investment grade as sufficient financial flexibility sustained operations with a liquidity cushion during extreme markets.
A Negative Rating Outlook is assigned based on the current risk profile of the funds with market conditions and liquidity remaining volatile and tenuous, respectively. Performance has the potential to remain highly variable given the funds' exposure to convertible investments and certain credit strategies as basis risks remain high. Funding costs are also expected to be higher than prior years. Risk allocations will emphasize more liquid instruments and the financing environment is expected to remain constrained over the near term.
The following ratings were downgraded and assigned a Negative Rating Outlook:
Citadel Kensington Global Strategies Fund Ltd.
--Long-term Issuer Default Rating (IDR) to 'BBB-' from 'BBB'.
Citadel Wellington LLC
--Long-term IDR to 'BBB-' from 'BBB'.
Citadel Finance Ltd.
--Long-term IDR to 'BBB-' from 'BBB';
--Senior unsecured to 'BBB-' from BBB'.
Ratings affirmed by Fitch:
Citadel Finance Ltd.
--Short-term IDR at 'F3'.