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Moody’s downgrades Gartmore

Moody’s Investor Service has downgraded Gartmore after citing a significant deterioration of the firm’s balance sheet and profitability in 2008.

The ratings agency has downgrading the firm from Ba3 to Caa1 and has announced it will withdraw the rating of the Gartmore Group for business reasons.

Moody’s says that while earnings before interest, taxes, depreciation and amortization was £90m in 2008, Gartmore recorded a net loss and has negative net assets, driven by foreign exhange movement and long-term debt.

A firm given a rating of Caa1 is judged to be of poor standing and are subject to very high credit risk, and have “extremely poor credit quality”.

The statement from Moody’s reads: “With senior debt of about £636mn at December 2008, gross debt/EBITDA leverage was over 7x and is expected to increase significantly in 2009 as lower management and performance fees reduceEBITDA levels.

“Offsetting this, the company does have approximately £220mn of cash on its balance sheet. Even if profitability were to be improved, and the exchange rate movements reversed, Moody’s does not expect the financial metrics to be above the ‘Caa’ level for some time.”

Gartmore global head of distribution Phil Wagstaff says: “This news only affects those who own our debt who have been regularly updated on the situation. Our debt is covenant-light, meaning that there is no prospect of breaching and we do not have to pay anything back until 2014.”


The fear market

Last week, I started my look at some important current realities underpinning investment attitudes and action. These were founded on research carried out with US investors and advisers but I believe that there are some useful insights that we can draw on when considering the UK.


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