NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BBB-' rating to BGC Partners, Inc.'s (BGC) announced issuance of $300 million 5-year senior unsecured notes. The notes will rank pari passu with all existing senior unsecured notes.
Proceeds from the issuance are expected to be used for general corporate purposes, which may include the repayment of a $160 million July 2016 debt maturity, and to fund future potential acquisitions.
KEY RATING DRIVERS - Senior Unsecured Debt
The expected rating is equalized with BGC's 'BBB-' Long-Term Issuer Default Rating (IDR) which reflects the modest impact on BGC's cash flow leverage and interest coverage ratios, the company's strong liquidity position, and its track record of accretive acquisitions.
Fitch calculates that BGC's leverage, as measured by gross debt to adjusted EBITDA, excluding the non-cash, non-dilutive, partnership unit-exchange-related charges, was 2.3x for the trailing 12 months (TTM) ending 1Q16 compared to 2.2x end-2015. Interest coverage, as measured by adjusted EBITDA to interest expense, was 5.3x at TTM at end-1Q16, compared to 5.4x at end-2015. The slight deterioration in both metrics was due to weaker EBITDA generation.
Pro forma for the debt issuance, taking into account the debt retirement in July 2016, and anticipated additional synergies with respect to GFI's integration, debt to adjusted EBITDA is expected to increase to 2.4x and interest coverage to 6.2x, both consistent with Fitch's quantitative benchmarks for 'BBB' category securities firms with low balance sheet usage. Should BGC be unable to achieve and sustain expected EBITDA levels, this could potentially pressure the ratings. Conversely, continued improvement in financial performance and accretive acquisitions would afford BGC additional financial flexibility.
IDRs AND SENIOR DEBT
The expected unsecured debt rating is primarily sensitive to changes in BGC's IDR. In addition, the unsecured debt rating is sensitive to changes in Fitch's assessment of the recovery prospects for the debt class, such that a material increase in secured debt with payment priority ahead of the unsecured debt could result in the unsecured debt being notched down from BGC's IDR.
Ratings could be adversely affected should BGC be unable to improve EBITDA and as a result the leverage stays in excess of 2.5x or interest coverage remains below 6.0x on a sustained basis. Failure to invest excess debt proceeds in accretive acquisitions, increased shareholder-friendly activities, including increased dividends or outsized share buybacks or the departure of BGC's CEO prior to further expansion of the management team, would also be viewed negatively.
Positive rating momentum, although limited in the medium term, could be driven by improved leverage and interest coverage metrics, a sustained increase in profit margins, continued growth and diversification of the brokerage platforms, such that earnings prove to be more durable in the face of industry cyclicality, and a reduction in key man risk.
BGC's ratings are expected to remain equalized with those of its ultimate parent, Cantor, as Fitch considers BGC to be a consolidated core subsidiary of Cantor due to the significant operational, financial and managerial linkages between them. As a result, any changes in Cantor's ratings could also result in changes to BGC's ratings.
Fitch expects to rate the following:
BGC Partners, Inc.
--$300 million senior unsecured notes 'BBB-(exp)'.
Date of Relevant Committee: February 26, 2016
Additional information is available on www.fitchratings.com.
Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)