Wall Street Gives Corporate Merger Thumbs Up

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WALL STREET – Fitch Ratings on Monday affirmed its top A+ long-term issuer default rating of Mid-Atlantic Corporate FCU, even as the Pennsylvania-based corporate prepares to dilute its capital through a merger with thinly capitalized Virginia Corporate FCU.

The transaction should provide the combined corporates with some cost saving opportunities, but more importantly, by the time the merger is completed Mid-Atlantic likely will have completed its current capital raising initiatives and capital ratios for the combined company are expected to be in compliance with the new regulatory standards, Fitch reported yesterday.

The Wall Street ratings are important because they give a good indication of a corporate’s financial strength, especially when a corporate goes to raise funds by selling commercial paper or other debt on the public markets.

Mid-Atlantic, based in Harrisburg, Penn., has about $3.1 billion in assets and capital of $154 million, while VaCorp, based in the Washington, D.C., suburb of Lynchburg, Va., has $1.2 billion in assets but just $15 million in capital.

Fitch did affirm Mid-Atlantic’s short-term issuer default rating, which reflects the company’s standalone financial position absence external support, at a low “E.” The “E” Individual rating denotes a company that requires or will require external support. In Fitch’s view, although the Mid-Atlantic never fell below its mandatory regulatory capital requirements, the corporate still faces significant capital challenges and continues to benefit from the government support provided to the industry to stabilize the corporate credit union system. However, as Mid-Atlantic executes its current capital raising initiatives while maintaining its otherwise sound fundamentals, the corporate’s Individual rating would likely be upgraded, said Fitch.

The corporate merger is expected to be completed during the fourth quarter of 2011.

The planned merger is one of two corporate combinations in the works, along with a deal by Georgia Central CU to merge with the remnants of failed Southwest Corporate FCU.

Separately, NCUA reported that the three latest corporate failures, Southwest, Members United and Constitution, each had extinguished all of their member capital by the time they were taken under conservatorship by NCUA on Sept. 24. That means it is highly unlikely that the more than 3,000 credit union members of the three corporates will recover any capital after the ongoing liquidation of the three failures.


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