Standard & Poor's Corp. on Tuesday lowered the ratings of three subsidiaries of Finova Group Inc.

The ratings agency cited the uncertain outcome of Finova's negotiations over debt restructure, declining asset quality fundamentals, and eroding franchise value.

Standard & Poor's downgraded Finova Finance Trust's preferred stock to CCC from B-plus; Finova Capital Corp.'s long-term counterparty credit and senior unsecured debt to B from BB; and Finova Capital PLC's senior unsecured debt to B from BB. The ratings agency said that its outlook for the parent company remains negative.

The move followed a similar downgrade by Moody's, which on Friday lowered its rating for the senior debt of Finova Capital Corp. and all its related affiliates to Caa1 from B3. Moody's said that those ratings remain under review, and that the agency may downgrade the debt further.

Standard & Poor's said it acted following Finova Group's announcement last week that it would propose a comprehensive restructuring to its bank group and public debt holders, which will likely entail principal reduction, an extension of some debt maturities, and possibly securing some of the Phoenix company's assets.

While Standard & Poor's said that a Finova restructuring plan is yet to be determined, the agency would consider "any failure to pay its obligation fully" to a default on Finova's part.

"Any deviation from the public bond's original contractual terms, other than just maturity, would constitute a default under Standard & Poor's criteria" said Lisa J. Archinow, a director at Standard & Poor's.

Moreover, the agency said that "to the extent that these negotiations are unsuccessful, this could lead the company to file for bankruptcy."

For Finova, 2000 is likely a year executives will want to forget.

In March its longtime chief executive officer, Samuel L. Eichenfield, quit as the company reported an $80 million charge that would leave its first-quarter earnings shy of projections.

In the third quarter the company wrote off $109 million related to investments, repossessed assets, and equipment held for sale or lease; the largest single writeoff was of a $54.8 million equity investment in Specialty Real Estate Finance, a resort finance developer. Finova posted a net loss of $274.1 million for the quarter, compared with net income of $54.9 million a year earlier.

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