OREANDA-NEWS. Fitch Ratings has affirmed BGC Partners, Inc.'s (BGC) Long-term Issuer Default Rating (IDR) and senior unsecured debt rating at 'BBB-' and Short-term IDR at 'F3'. The Rating Outlook is Stable.

Fitch has simultaneously upgraded GFI Group Inc.'s (GFI) IDR to 'BBB-' from 'BB+' and Short-term IDR to 'F3' from 'B' and withdrawn the IDRs due to the reorganization of the entity. Fitch has also affirmed and continues to maintain GFI's senior unsecured debt rating at 'BBB-'.

Fitch has also simultaneously affirmed the ratings for BGC's parent company, Cantor Fitzgerald, L.P.'s (Cantor), at 'BBB-/F3'. For more information on this rating action please see the rating action commentary entitled 'Fitch Affirms Cantor Fitzgerald at 'BBB-/F3'; Outlook Stable' dated Feb. 29, 2016.

KEY RATING DRIVERS - IDRs AND SENIOR DEBT

The affirmation of BGC's ratings reflects the company's established franchise in the inter-dealer broker (IDB) space, which is further enhanced by the acquisition of GFI, combined with its growing commercial real estate (CRE) brokerage business, which is helping to diversify its revenue stream, a low credit and market risk profile, strong execution on its business growth and diversification plans, and appropriate leverage and interest coverage metrics.

Ratings are constrained by the cyclical nature of the brokerage businesses, structural regulatory reforms which are impacting the IDB business and key man risk associated with BGC's CEO.

BGC's ratings are currently equalized with those of its parent, Cantor Fitzgerald L.P (Cantor, rated 'BBB-/F3' by Fitch), as Fitch considers BGC as a core subsidiary of Cantor due to the significant operational and financial linkages between the two companies.

Fitch believes that the acquisition of GFI, which was completed on January 12, 2016, will be accretive to BGC as it will increase the company's market share in the IDB space, diversify its product offering, and create potential cost synergies, particularly at a time when the operating environment for IDBs remains challenging due to pressured trading volumes.

Fitch notes that leverage, interest coverage and liquidity levels on a consolidated basis are modestly elevated as a result of the acquisitions in 2015, as GFI operated with higher leverage and weaker interest coverage and liquidity levels prior to the acquisition. Although BGC's and GFI's front-office brokerage businesses will remain separately branded, BGC has integrated GFI's back office, technology and infrastructure operations, resulting in cost savings and increased cash flows, which should help reduce leverage and improve interest coverage and liquidity over time.

As of Dec. 31, 2015, BGC had about $1.0 billion in available liquidity comprising cash and cash equivalents, net marketable securities and securities owned, up from a low of $513.9 million at 3Q15. The sale of Trayport for approximately $650 million of Intercontinental Exchange (ICE) stock also enhanced liquidity. BGC has $160 million of Convertible Notes maturing in July 2016, for which BGC has sufficient liquidity to repay should they elect to do so. BGC also expects to receive shares of NASDAQ OMX from the sale of eSpeed over the next 12 years which could serve as a secondary source of liquidity, albeit one that is more market price sensitive. Fitch believes that BGC has adequate liquidity to support its operations and other strategic objectives. In addition, the company established a $150 million unsecured credit facility in February, 2016.

BGC's leverage, as measured by gross debt-to-adjusted EBITDA, was 2.2x at Dec. 31, 2015, compared with 2.4x at Dec. 31, 2014. The decrease was primarily a result of the improvement in EBITDA generation primarily from the growing contribution from BGC's real estate brokerage activities. Interest coverage, as measured by adjusted EBITDA-to-interest expense, was 5.4x at year-end 2015, compared to 7.9x at year-end 2014, due to the incremental interest expenses associated with the additional debt BGC has taken on.

BGC's consolidated leverage is within Fitch's threshold for the 'BBB' rating but interest rate coverage ratios fell modestly outside of Fitch's thresholds for the 'BBB' rating category (maximum leverage of 2.5x and minimum interest coverage of 6.0x) at December 31, 2015. However, were BGC to elect to use cash on hand to repay the $160 million 4.50% Convertible Notes due in July 2016, pro forma leverage would decline to 1.8x. Given the overlapping business models of BGC and GFI, Fitch believes some level of additional cost synergies is achievable, which would further improve leverage and interest coverage levels, all else equal. BGC estimates the annualized cost synergies to be at least $100 million by the end of 2016. Fitch expects the company to carefully manage its leverage, interest coverage and liquidity position.

The upgrade of GFI's IDRs results in an equalization of the ratings with those of BGC reflecting that GFI has become a wholly-owned, core subsidiary of BGC after the completion of the back-end merger in January 2016, the unconditional guarantee of GFI's outstanding debt by BGC and the integration of GFI's operations with those of BGC. The withdrawal of the IDRs is driven by the reorganization of the entity, and furthermore, the cessation of the filing of standalone financial statements with the SEC following the completion of GFI's consent solicitation with respect to its 8.375% Senior Note. The affirmation and continued maintenance of the 'BBB-' rating assigned to GFI's senior unsecured debt reflects that it is unconditionally guaranteed by BGC.

The Stable Rating Outlook reflects Fitch's expectation that BGC will maintain sufficient liquidity for near-term debt maturities/obligations and adequate leverage and interest coverage levels. The Stable Outlook also reflects Fitch's expectation for modest cash flow and margin improvement as a result of integrating GFI's back office operations and rationalizing costs.

RATING SENSITIVITIES - IDRs AND SENIOR DEBT

Positive rating momentum, although limited in the medium term, could be driven by continued growth and diversification of the brokerage platforms, such that earnings prove to be more durable in the face of industry cyclicality, a sustained increase in profit margins, maintenance of conservative leverage and interest coverage metrics and a reduction in key man risk.

Ratings could be adversely affected by an inability to improve EBITDA or reduce debt levels, which leads leverage to rise above 2.5x or interest coverage to fall below 6x, on a sustained basis. Increased shareholder-friendly activities, including increased dividends or outsized share buybacks or the departure of BGC's CEO prior to further expansion of the management team, would also be viewed negatively from a rating perspective.

BGC's ratings are expected to remain equalized with those of its ultimate parent, Cantor, as Fitch considers BGC to be a consolidated core subsidiary of Cantor due to the significant operational, financial and managerial linkages between them. As a result, any changes in Cantor's ratings could also result in changes to BGC's ratings.

GFI's senior unsecured debt rating is linked to BGC's rating, based on the unconditional guarantee, and therefore is sensitive to changes in BGC's rating.

Fitch takes the following actions:

BGC Partners, Inc.:
--Long-term IDR affirmed at 'BBB-';
--Short-term IDR affirmed at 'F3';
--Senior unsecured debt affirmed at 'BBB-';

The Rating Outlook is Stable.

GFI Group Inc.:
--Long-term IDR upgraded to 'BBB-' and withdrawn;
--Short-term IDR upgraded to 'F3' and withdrawn;
--Senior unsecured debt affirmed at 'BBB-'.