OREANDA-NEWS. S&P Global Ratings today said it affirmed its 'BB-' issuer credit and senior unsecured credit ratings on CIFC LLC. The outlook remains stable.

CIFC and an affiliate of F. A.B. Partners have entered into a definitive merger agreement, under which F. A.B. will acquire CIFC for approximately $333 million in cash. The F. A.B. acquisition is an all-equity transaction that does not result in additional debt for CIFC. "We do not expect the transaction to have an immediate impact on the company's business or financial risk," said S&P Global Ratings credit analyst Sebnem Caglayan.

"Our 'BB-' issuer credit rating on CIFC continues to reflect the company's solid market position within the CLO market, relatively recurring management fees the company receives from its 27 CLO vehicles, and good investment performance, as well as its less diversified business model compared with some of the other alternative managers we rate and its considerable debt load," said Ms. Caglayan.

CIFC's reported debt totaled $160 million as of June 30, 2016, resulting in debt to adjusted EBITDA of 4.0x-5.0x. CIFC's fee-related assets under management (AUM) were $13.6 billion as of June 30, 2016. Although both the CLO issuance and AUM growth of the non-CLO business have been slightly lower than our expectations so far in 2016, this has not caused the company's financial profile to deteriorate, in our view.

The stable outlook on CIFC reflects our view that the company will generate an adjusted EBITDA margin above 35%, debt leverage of 4.0x-5.0x, and interest coverage of about 4.5x-5.5x in the next 12 months. The stable outlook also reflects our expectation that the company will continue to issue new risk retention-compliant CLOs and continue to grow its non-CLO business.

We could lower the rating if the business profile begins to deteriorate such that investment performance worsens, CIFC experiences significant outflows, and the company loses its current market position in the CLO market. We could also lower the ratings if the company operates with debt to adjusted EBITDA above 5.0x on a sustained basis.

We could raise the rating if CIFC operates with leverage between 3.0x and 4.0x on a sustained basis while diversifying its business away from CLOs and maintaining its competitive position in the CLO market.