DBRS Takes Rating Action on Pacific Capital Bancorp’s Tendered Subordinated Debt
DBRS has today downgraded the tendered subordinated debt securities of Pacific Capital Bancorp (PCBC or the Company) to “D” following the execution of its notes exchange offer. The default status for the exchanged and now-extinguished subordinated debt reflects DBRS’s view that certain bondholders, which consented to the exchange offer, were paid out less than face value, which as discussed in DBRS’s press release dated May 19, 2010, is considered a default per DBRS policy.
All other ratings, including PCBC’s Issuer & Senior Debt rating of CC, remain Under Review with Positive Implications. DBRS notes that PCBC closed the previously announced $500 million investment in the Company by SB Acquisition Company LLC, a wholly owned subsidiary of Ford Financial Fund, L.P. (Ford). As a result of the Ford investment, DBRS expects the Company to have enough capital to be considered “well capitalized” under traditional regulatory guidelines, but it remains unclear whether the regulatory metrics would meet or exceed the enhanced capital requirements mandated by the OCC.
Overall, $68 million out of a $121 million aggregate principal amount in subordinated debt securities were tendered, while none of the outstanding trust preferred securities were tendered. DBRS viewed the tender offer as coercive and unequal (not receiving par) for bondholders, which is considered a default by DBRS policy.
DBRS notes that the review will likely be concluded following the release of 3Q10 results. If the capital plan of converting the newly outstanding mandatorily convertible preferred stock into common equity goes as expected, there could be upward rating pressure depending on the extent that DBRS believes the newly augmented capital position will be able to provide sufficient loss protection given the substantial asset quality issues still facing the Company. Moreover, DBRS will look to the Company’s ability to generate revenues and control expenses to provide sufficient and sustainable income before provisions and taxes.
Notes:
All figures are in U.S. Dollars unless otherwise noted.
The applicable methodologies are the Global Methodology for Rating Banks and Banking Organizations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.
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