Kroll Bond Rating Agency (KBRA) assigns an issuer rating of BBB for New York, NY-based BGC Partners, Inc. (NASDAQ: BGCP) ("BGC" or "the company") The Outlook for the rating is Stable.
The rating is underpinned by management’s long record of producing mostly consistent operating results, adapting to regulatory changes and market evolution, and ongoing emphasis of risk management. In addition, BGC’s agency brokerage business model and concomitant higher quality balance sheet comprised of assets with low credit and market risk also reinforce the rating.
Profitability, while reasonably stable, is low for the rating, owing to historically high compensation expense (cash and non-cash). However, KBRA believes that the company retains the flexibility to adjust the level of compensation as needed. Leverage in the 4x range on a debt/EBITDA basis is consistent with the rating. Debt-to-book capital has been on an increasing trend due to high shareholder and partner returns of capital that have led to lower retained earnings.
In an abundance of caution, due to the economic dislocation cause by COVID-19, the company sharply cut the common dividend and signaled that other equity distributions would be curtailed. These actions further demonstrate management’s commitment to preserving capital in an uncertain economic environment.
BGC is adequately funded, as evidenced by cash coverage of short-term obligations that has averaged about 2.5x for the past several years.
KBRA continues to monitor the effects of COVID-19. Please refer to our COVID-19 coverage section here.
The ratings are based on KBRA’s Securities Firms Global Rating Methodology published on March 8, 2018.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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