Bahrain’s Investcorp on review for possible downgrade

Moody's Investors Service said that Bahrain-based Investcorp's half year 2009 losses of US$ 511.0 mln are in line with expectations and that the Baa3/Prime-3 deposit ratings remain on review for possible downgrade.
On 12 November 2008 Moody's downgraded Investcorp's ratings to Baa3/Prime-3/D+ from Baa2/Prime-2/C- and put the Baa3/Prime-3 deposit ratings on review for possible further downgrade. These actions reflected near-term pressures on the bank's financial strength as well as Moody's view on some of the longer-term challenges for the alternative investment sector. At that time, the rating agency also took note of Investcorp's commitment to raising new capital and deleveraging its balance sheet but also recognised the challenges the bank was likely to face in implementing these plans within the context of a difficult operating environment.
Moody's noted that in the months following its November 2008 rating actions, Investcorp reduced its volume of risk assets to US$ 2.35 bln by successfully redeeming a portion of fund of hedge fund investments but has also recognised marked-to-market losses that have reduced capital levels by another 30% to US$ 708.0 mln.
One of the factors that would determine whether Investcorp retains an investment grade rating is leverage, and more specifically the ratio of risk assets (private equity and fund of hedge fund investments) to capital. Moody's view is that in the current operating environment, a financial institution with Investcorp's franchise and earning profile should maintain a ratio of risk assets to capital of close to two-to-one.