S&P sees Gain Capital as good strategic fit for INTL FCStone

Further to yesterday’s announcement by INTL FCStone that it will offer $350 million in aggregate principal amount of Senior Secured Notes due 2025, S&P Global Ratings has assigned its ‘BB-‘ rating to INTL FCStone’s new senior secured second-lien notes.

Let’s recall that INTL FCStone intends to use the net proceeds from the sale of the notes, together with cash on hand, to fund the cash consideration for the acquisition of GAIN Capital.

S&P explains that it rated the new senior secured second-lien notes ‘BB-‘, in line with the issuer credit rating, to reflect that the level of priority debt from the firm’s term and revolving credit facilities is not excessive. S&P expects the amount of second-lien debt to not exceed the amount of holding company assets available to the second-lien debtholders.

S&P has also affirmed its ‘BB-‘ issuer credit rating on the firm. The affirmation reflects that S&P sees Gain Capital as “a good strategic fit for INTL, with no material erosion in funding or liquidity”. Although pro forma for the acquisition, the risk-adjusted capital (RAC) ratio is slightly below 8%, S&P expects INTL to operate Gain with lower market risk than it operated with as an independent company.

Given that both firms’ profitability has benefited from higher market volatility so far in 2020, S&P believes that retention of improved earnings and lower market risk at Gain as part of INTL will support a RAC ratio above 8%.

Finally, S&P say they believe that Gain’s market risk will be reduced once it is on INTL’s clearing platform, from a combination of increased internalization of orders, portfolio diversification when combined with INTL’s other trading activities, and reduced hedging costs. S&P also expects INTL to operate this business more similarly to its other principal trading businesses, with lower market risk tolerance.