NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDRs) of Citadel Kensington Global Strategies Fund Ltd. (Kensington) and Citadel Wellington LLC (Wellington) at 'BBB-' and the senior debt of Citadel Finance Ltd. at 'BBB-'. The Rating Outlook is Stable. See the full list of ratings at the end of this release.
The ratings affirmations reflect the resurgence in Kensington and Wellington fund performance, reduced risk profile, lower leverage and improved liquidity. The financial performance of both the Kensington and Wellington funds has been generally positive following the only loss year in 2008. Profitability rebounded strongly in fiscal year (FY) 2009, and was sustained in FY 2010, despite four months of negative returns in FY 2010. Fiscal year-to-date results are solid, totaling approximately 13.5% through July 31, 2011 for both Kensington and Wellington.
The Stable Outlook acknowledges the demonstrated resiliency of the funds in difficult credit markets. With the tempered risk profiles and effective funding plans, the funds should have the agility to perform in spite of the uncertainties prevalent in the current economic environment.
Positive performance notwithstanding, assets under management (AUM) growth has been limited. Redemptions have exceeded subscriptions. AUM declines that result in higher leverage or reduced liquidity trends could have negative ratings implications.
In the first quarter of 2009 (1Q'09), the firm reduced exposures to several higher risk and/or concentrated assets (e.g., EFTC and convertibles). Upon exiting select high risk strategies and reducing less liquid exposures, management has redirected capital to other businesses such as equity, energy and rates. Fitch views this refinement of the investment profile positively and believes the funds' risk profile has been tempered as a result.
Citadel has an effective liquidity management program in place. The company's funding plan been strengthened with the expansion of its bank lineup, and greater access to longer term funding. Also, the asset composition of the funds has evolved, dominated by liquid instruments. Funding flexibility is enhanced as a result.
Risk and liquidity are rigorously managed around three pillars: volatility, stress testing, and liquidity reserves. Since the height of the crisis, key measures have trended positively, reflecting declining volatility in absolute ($) and relative (% capital) terms. Risk measurement is comprehensive and real time. Citadel's extensive measurement and reporting systems used for portfolio management are supported by full back up capabilities. With the recent sale of Omnium to Northern Trust, core fund administration duties (e.g., valuation, reconciliation, reporting) will be performed arms-length by this third party.
Kensington and Wellington jointly and severally guarantee the medium-term notes issued by Citadel Finance. Debt and counterparty risk in the guarantor funds is senior to the MTN. Current debt outstanding is $175 million. The notes are expected to be repaid in full at maturity in 4Q'2011.
Fitch has affirmed the following ratings:
Citadel Kensington Global Strategies Fund Ltd.
--Long-term IDR at 'BBB-';
Citadel Wellington LLC
--Long-term IDR at 'BBB-';
Citadel Finance Ltd.
--Long-term Issuer Default Rating (IDR) at 'BBB-';
--Short-term IDR at 'F3'.
--Senior unsecured at 'BBB-'.
The Rating Outlook is Stable.
Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Investment Manager and Alternate Funds Criteria' (Dec. 23, 2010).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Investment Manager and Alternative Funds Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=590125
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