KEY RATING DRIVERS - IDRs AND SENIOR DEBT
The affirmation reflects Cantor's established position in the middle market brokerage space, moderate risk profile, controlled leverage, and adequate liquidity levels. Ratings are constrained by the cyclicality and dependence on capital markets activity for most of its businesses, and its exposure to non-core ventures which could potentially introduce financial/reputational risk.
Cantor's operating performance in its core institutional business, excluding BGC and
Fitch expects operating performance to be pressured in 2H'14 as market conditions affecting the institutional brokerage business continue.. Sustained decline in the core institutional business revenues, without offsetting cost declines, could pressure the ratings.
Cantor's controlled use of leverage has been the supporting the strength of its ratings. Adjusted leverage ratio (defined as assets-reverse repurchase/equity), excluding the
Liquidity at the parent level has declined year-over-year due to increased regulatory requirements, expansion efforts, and challenging operating conditions in its core institutional brokerage business, as earnings contribution from BGC and
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
Cantor's ratings could come under pressure if operating performance in its core institutional brokerage business continues to deteriorate, and it is unable to maintain adequate liquidity levels over the next few quarters. Ratings remain sensitive to material increase in leverage levels, adverse changes in the reverse repurchase book composition, and/or material loss or reputational damage from Cantor's noncore ventures. Ratings also remain sensitive to changes in BGC's ratings.
Positive rating momentum, although limited in the near term, will be driven by sustained improvement in core institutional brokerage business margins, increase in parent company liquidity levels, sale or closure of some non-core and non-viable ventures, while maintaining moderate risk appetite, low leverage, and sufficient capital.
The ratings were affirmed as follows:
--Long-term IDR at 'BBB-';
--Senior unsecured debt at 'BBB-';
--Short-term IDR at 'F3'.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
--'Global Financial Institutions Rating Criteria' (
--'Securities Firms Criteria' (
-- 'Rating FI Subsidiaries and Holding Companies' (
--'2013 Outlook: Securities Firms (
2013 Outlook: U.S. Securities Firms
Securities Firms Criteria
Rating FI Subsidiaries and Holding Companies
Global Financial Institutions Rating Criteria
Mohak Rao, CFA
Source: Fitch Ratings
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