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Fitch Affirms Investcorp at 'BB'; Revises Outlook to Stable Following Resolution of Debt Maturities

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Investcorp Bank B.S.C (Investcorp) at 'BB'. The Rating Outlook has been revised to Stable from Negative. This action follows the company's resolution of debt maturities coming due in early 2013. A full list of ratings follows this release.

Fitch had downgraded Investcorp's IDR to 'BB' from 'BB+' in February 2012 to reflect the agency's concern regarding $648 million of total debt maturing in March and April of 2013. This balance was reduced to $575 million at June 30, 2012. The rating action also reflected concern with respect to the volatility of the company's earnings stream that is highly dependent on asset-based income. Although the previous rating action incorporated the expectation that the company would successfully refinance its debt maturities, the agency's Outlook reflected concerns around the laddering of maturities at a reasonable cost.

The company recently entered into a $529 million forward start debt facility, with contractual amortizations in September 2013 and 2014, and final maturity in September 2015. The facility is provided by a syndicate of banks. Fitch notes the new facility has stricter and more creditor-friendly net worth and leverage covenants; conversely, liquidity covenants were relaxed. Fitch believes that through the new facility and reduction in hedge fund co-investments (approximately $200 million since December 2011), Investcorp has generated sufficient liquidity to meet 2013 debt maturities and eliminate any cliff risk in the ratings.

Rating Drivers and Sensitivities

Fitch notes that near-term rating upside is likely limited due to Investcorp's volatility in profitability, historic dependence on asset-based income, a significant proportion of high-cost preferred stock in the capital structure, and wholesale funding structure. Should Investcorp be successfully able to implement its plan to increase the proportion of fee income in the revenue stream, decrease more volatile asset-based income and improve fixed charge coverage, a Positive Outlook could be considered. This assumes that leverage metrics continue to improve, liquidity grows and the proportion of co-investments in assets under management (AUM) declines according to plans. Should Investcorp be unable to generate sufficient earnings to cover fixed charges, negative trends in AUM continue and/or co-investments account for a stable or increasing proportion of AUM, the ratings could be further downgraded. Should the sovereign rating of Bahrain (rated 'BBB', Outlook Stable by Fitch) be downgraded significantly, Investcorp's ratings would be downgraded as Fitch does not envision rating the issuer above the sovereign rating.

The viability rating of Investcorp S.A. has been withdrawn since it is not a regulated entity.

Fitch has taken the following rating actions:

Investcorp Bank B.S.C

--Long-term Issuer Default Rating (IDR) affirmed at 'BB'; Outlook revised to Stable from Negative;

--Short-term IDR affirmed at 'B';

--Viability Rating affirmed at 'bb';

--Support affirmed at '5';

--Support Floor affirmed at 'NF'.

Investcorp S.A.

--Long-term IDR affirmed at 'BB'; Outlook revised to Stable from Negative;

--Short-term IDR affirmed at 'B';

--Viability Rating affirmed and withdrawn at 'bb'.

Investcorp Capital Ltd.

--Long-term IDR affirmed at 'BB'; Outlook revised to Stable from Negative;

--Short-term IDR affirmed at 'B';

--Senior unsecured debt affirmed at 'BB'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'Investment Manager and Alternate Funds Criteria' (Dec. 23, 2011).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=661367

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Fitch, Inc.
Primary Analyst
Ed Thompson, +1-212-908-0364
Senior Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Source: Fitch Ratings