Standard & Poor's
just rated Calamos Investments
for the first time ever, giving the Naperville, Illinois-based firm BBB+ with a negative outlook.
"Should net outflow stabilize, we could revise the outlook back to stable," stated S&P analyst Chris Cary. "While Calamos' strong cash flow generation provides significant comfort, if overall net flows do not stabilize over the next one to two years, the rating could be lowered."
Cary also Calamos for paying down $400 million of its $525 million in debt in the fourth quarter of 2008.
The news from S&P came to light even as Calamos released its latest 10-K
filing. The firm managed $24.040 billion at the end of 2008 (including $17.498 billion in mutual funds), down from $46.208 billion at the end of 2007 (including $34.835 billion in mutual funds).
Company Press Release
NEW YORK (Standard & Poor's) March 12, 2009-- Standard & Poor's Ratings
Services today said that it has assigned its 'BBB+' credit rating on both
Calamos Holdings LLC (Calamos) and the firm's outstanding long-term debt. The
outlook is negative.
The ratings reflect the company's strong balance sheet and cash flow
generation. The negative outlook reflects our view of the current operating
environment, recent net outflows, and Calamos' investment performance.
"Should net outflow and performance stabilize, we could revise the
outlook back to stable. Further, we anticipate that the firm's recent focus on
its distribution network will bear fruit throughout the year--particularly for
the two largest funds--but also for the convertible fund, which Calamos
reopened for investment and the long/short equity offering. While Calamos'
strong cash flow generation provides significant comfort, if overall net flows
do not stabilize over the next one to two years, the rating could be lowered,"
said Standard & Poor's analyst Chris Cary.
While its long-term investment performance remains strong, its one-,
three-, and five-year performance metrics trail the S&P 500 Index reading for
most funds. This has contributed to a 48% decline in AUM over the past year
and a decline in earnings.
Despite diversification efforts, Calamos still has significant revenue
concentrations related to its three largest funds, which represented 49% of
the firm's assets under management (AUM) as of Dec. 31, 2008.
Management remains focused on reducing its reliance on the larger funds
and is actively introducing new products/strategies. In 2008, the firm
introduced its Evolving World Growth Fund, which has $19 million in AUM, along
with a 130/30 equity strategy ($16 million AUM). While it may take some time
for Calamos to diversify its revenue stream, we view its diversification
strategy as a positive factor.
During fourth-quarter 2008, Calamos reduced leverage significantly by
paying down $400 million of its original $525 million outstanding debt. The
reduced debt resulted in a 2008 EBITDA-to-interest coverage of 5.85 and a
total debt-to-EBITDA ratio of 0.63. The debt reduction was funded by the sale
of investment holdings. However, Calamos' remaining investment holdings
totaled $274 million as of Dec. 31, 2008--more than double the amount of
remaining outstanding debt.
Complete ratings information is available to RatingsDirect subscribers at
www.ratingsdirect.com. All ratings affected by this rating action can be found
on Standard & Poor's public Web site at www.standardandpoors.com; select your
preferred country or region, then Ratings in the left navigation bar, followed
by Find a Rating.
Correction: A previous version of this story mistakenly labeled the new rating a downgrade. According to a Calamos spokesman, this was the first time S&P ever rated Calamos.
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