March 14, 2012 / 9:48 PM / 5 years ago

TEXT-S&P cuts Penson Worldwide ratings to 'CC'

March 14 - Overview	
     -- Penson Worldwide Inc. has commenced a debt restructuring plan, which 	
we deem a distressed exchange.	
     -- As a result, we are lowering our issuer credit and issue ratings on 	
Penson to 'CC' and removed the ratings from CreditWatch negative. 	
     -- The rating outlook is negative.	
     -- When the company completes the debt restructuring, we expect to lower 	
the ratings further.	
    	
Rating Action	
On March 14, 2012, Standard & Poor's Ratings Services lowered its long-term 	
counterparty credit rating on Penson Worldwide Inc. to 'CC' from 'B-'
and removed the ratings from CreditWatch Negative. The outlook is negative. At
the same time, Standard & Poor's lowered its rating on Penson's $200 million 	
senior secured second-lien notes to 'CC' from 'CCC+' and removed the rating 	
from CreditWatch negative.	
	
Rationale	
The downgrade reflects the company's announcement that it is launching a debt 	
restructuring effort to help alleviate its heavy debt and debt service burden. 	
	
Penson's plans to exchange the rated $200 million 12.5% second-lien notes due 	
2017 for $100 million 12.5% first-lien payment-in-kind (PIK) notes due 2017 	
and $100 million 12.5% preferred PIK shares redeemable in 2017. Penson also 	
plans to exchange its $60 million senior convertible notes into new PIK notes 	
and 51.6% ownership of the company, and to convert its seller financing note 	
with Broadridge Financial Solutions Inc. into a 9.9% ownership of Penson. 	
	
The downgrade also reflect our view that, based on our criteria, the shift 	
into PIK on the rated debt means that the existing debtholders will receive 	
less than originally promised.	
	
Outlook	
The outlook is negative. When and if the debt exchange is complete, we will 	
lower our long-term counterparty credit rating on Penson to 'SD' (selective 	
default) and lower our rating on its $200 million senior secured second-lien 	
notes to 'D'. 	
	
The negative outlook also incorporates our belief that the fundamental 	
prospects for the company's business will not materially improve in the near 	
term. We expect that even with the elimination of its cash interest 	
obligations the firm will continue experiencing operating losses for at least 	
the next few quarters because of low interest rates and transaction volumes. 	
Once the exchange offer in completed, the company will lower its debt burden 	
and eliminate its cash interest obligations. Shortly thereafter, we will 	
reassess the company's creditworthiness and adjust the ratings to what we deem 	
appropriate under the new debt conditions; most likely no higher than a low 	
single 'B' rating. 	
	
Related Criteria And Research	
     -- Rating Implications Of Exchange Offers And Similar Restructurings, 	
Update, May 12, 2009	
     -- Rating Securities Companies, June 9, 2004	
	
Ratings List	
Downgraded; CreditWatch/Outlook Action	
                                        To                 From	
Penson Worldwide Inc.	
 Counterparty Credit Rating             CC/Negative/--     B-/Watch Neg/--	
	
Penson Worldwide Inc.	
 Senior Secured (1 issue)               CC                 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.

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