OREANDA-NEWS. Fitch Ratings has affirmed Intermediate Capital Group plc's Long-term Issuer Default Rating (IDR) and senior unsecured notes issued under its euro medium-term note (EMTN) programme at 'BBB-'. The Outlook on the IDR is Stable.

KEY RATING DRIVERS
IDR AND SENIOR DEBT
ICG's IDR is driven by its strong track record in mezzanine finance and related markets, historically as a direct investor of its own capital but increasingly through complementary asset management activities on behalf of third-party finance providers. The IDR is supported by ICG's increased focus on the more stable fee-based revenues derived from this line of business, the progressive expansion of its geographic coverage from European roots to include in particular North America and the Asia Pacific region, and Fitch's expectation that leverage will not rise substantially further following the pending GBP300m special dividend.

The ratings also reflect that to compensate for the lower margins earned from fund management relative to direct investment, a substantial investor base needs to be consistently supplemented and replenished. This is dependent in turn on market sentiment towards the asset classes in which ICG specialises and the strength of the group's own performance within them. Additionally ICG's earnings retain some exposure to volatility in respect of impairments and capital gains via its own asset portfolio. Fitch expects that provisions will remain below or close to a long-term average of approximately 2.5% of total portfolio size, helped by the lower concentration levels and stronger performance of the post-crisis investment portfolio, and by the resolution by now of the vast majority of legacy problem cases.

RATING SENSITIVITIES
IDR AND SENIOR DEBT
The ratings could be downgraded if ICG's leverage, defined as net debt adjusted for CLOs/tangible equity, exceeded 1.0x (pro forma March 2015, as adjusted to reflect special dividend: 0.72x) on a sustained basis, if the group reported a material fall in fund management fees or if it suffered significant impairment within its own asset portfolio.

Upside rating potential is currently limited, in view of the pending GBP300m capital return and the risks which remain within the group's own direct investments, although as a proportion of annual earnings these continue to reduce as the group's focus shifts progressively more towards fund management. The ratings could benefit from further expansion of the volume of stable recurring fee income earned from asset management activities, if accompanied by growth in profitability and containment of leverage.