) to 'BB' from 'BB+'. At the same time, the ratings were placed on CreditWatch with negative implications.
The downgrade and CreditWatch placement reflect the weak earnings performance of LaBranche for 2003, the announcement that the NYSE has widened the scope of its investigation into the firm's trading practices, and increasing pressure on the specialist business model. While the NYSE has not yet concluded its investigation, Standard & Poor's is concerned that the investigation may lead to the implementation of stricter regulations, which could negatively affect the specialists' ability to conduct principal trading. Principal trading represented 68% of the firm's total revenues in the first six months of 2003.
The long-term credit rating was also placed on CreditWatch with negative implications due to Standard & Poor's concern about the possibility for continued weak profitability for the foreseeable future, which could hinder LaBranche's ability to refinance maturing debt under reasonable terms. Standard & Poor's will discuss with management the outlook for earnings and plans for repayment of the $100 million of debt maturing in August 2004. At this time, the level of EBITDA and the full availability of a $200 million committed credit facility provide an adequate level of liquidity to meet this obligation.
LaBranche, which acts as the specialist for more than 650 companies, is the largest NYSE specialist firm in terms of both dollar and share volume traded.