Executives at Cole Taylor Financial Group, attempting to head off a debt downgrade from Duff & Phelps Inc., met with the ratings firm's analysts on Monday.
The Wheeling, Ill., holding company's debt was put on a credit watch with negative implications shortly after the early June announcement that Cole Taylor Bank would be spun off, leaving Cole Taylor Finance Co., a subprime auto lender.
Christopher J. Alstrin, Cole Taylor's chief financial officer, said he was not surprised or concerned about the action by the credit rating firm.
"The rating was completely expected," he said. "Whenever any company splits off a major asset, the credit companies are going to put them on watch."
Mr. Alstrin added in a telephone interview that he was "confident" that the company's debt would not be downgraded once the bank is spun off.
Cole Taylor executives, who last met with Duff & Phelps analysts on June 27th, are scheduled to meet with them again this week. They also met with Fitch Investor Services analysts, who gave the bank and the finance company an "evolving" rating.
Mr. Alstrin said that both rating companies have been informed that there will be other changes in the corporate structure. He explained that the publicly held finance company will have a significant reservoir of cash and the bank "will undergo recapitalizing efforts to ensure that there is an adequate amount of capital to meet the bank's needs."
Duff & Phelps fixed-income analyst James E. Moss said that Cole Taylor Financial was placed on credit watch because the auto finance company would no longer receive funding from the banking entity, a situation that could hinder "the company's growth, access to the capital markets, and track record in the subprime area."
Mr. Moss added that Duff & Phelps' decision on whether to change the rating would depend on the company's future leverage and funding mix.
Although Mr. Alstrin is optimistic about the finance company's outlook, he conceded that a downgrade would make issuing paper more expensive.
Fitch Investors Service also was "concerned" about Cole Taylor Financial's plan to split apart, but the status of its credit watch is "evolving"- less foreboding than Duff & Phelps' "watch down," said fixed income analyst David R. Martin.
He added that the company could be placed on "negative watch" if the outcome of Monday's meeting is not favorable.
"We're concerned about the same issues that Duff & Phelps is concerned with," said Mr. Martin.
"The fact that the company has been placed on alert," he said, "means that there are issues to be dealt with."
