Fitch Downgrades Central Pacific Financial to 'B'; Placed on Watch Negative
2009-06-26 22:19:02 -
Fitch Ratings has downgraded the long-term Issuer Default Ratings (IDRs) of Central Pacific Financial Corp. (CPF) and its bank subsidiary Central Pacific Bank to 'B' and 'BB-' respectively. Fitch has also widened the notching on CPF's preferred stock ratings due to the high risk of deferral. The preferred stock ratings have been downgraded to 'CC' reflecting the financial condition of the holding company and its limited access to alternative liquidity sources without regulatory approval. The ratings have also been placed on Rating Watch Negative. A complete list of ratings follows at the end of this release.
The two notch differential between the holding company and its bank subsidiary reflect the holding company's limited amount of liquid assets and its restricted access to alternative liquidity sources due to existing regulatory agreements under which the company and the bank are operating, At the same time, the bank subsidiary's capital position has been fortified by these actions, as all the proceeds ($135 million) of CPF's issuance of preferred stock to the U.S. Treasury was contributed to the bank subsidiary and dividends from the bank subsidiary to the holding company require prior regulatory approval.
Beyond the near term liquidity concerns of the holding company, which is the primary driver for the notching between the bank subsidiary and the holding company, the rating action reflects Fitch's view that CPF will endure increased credit stress in its Hawaii portfolio given the weakening Hawaii economy, as well as in its still sizeable exposure to California commercial real estate. Both portfolios have been showing signs of weakness and Fitch expects higher loss rates from these portfolios. With earnings and capital already having been impacted by its California residential real estate exposure, the company has less capacity to absorb material losses in the other segments of its loan book. Fitch believes that CPF needs to bolster its capital base in order to absorb expected higher losses, as well as provide needed liquidity at the parent company. Further, given its franchise and product concentrations, as well as its limited earnings diversity, Fitch has always expected CPF to maintain enhanced levels of capital and reserves.
The Negative Rating Watch reflects the prospect that if the holding company is unable to bolster its financial resources in the near term and its access to liquidity remains restricted; the company will likely have to defer on its preferred stock dividend, as well as on the dividends of its trust preferred securities. This would result in a further downgrade of the company's ratings. The Negative Rating Watch also considers the prospect of more pronounced credit deterioration, than currently anticipated, in either the mainland commercial real estate book, or more significantly, in the Hawaii portfolio. Should this occur, Fitch would likely downgrade CPF's ratings further.
Fitch assigns recovery ratings to individual security issues where the IDR of the issuer is rated in the single-B or below category. As such, Fitch has assigned a recovery rating of 'RR6' to the preferred and trust preferred securities of CPF, which implies recovery between 0%-10% on these securities in the event of failure or default by the issuer.
CPF is a $5.4 billion banking company headquartered in Honolulu, HI. CPF provides a full range of traditional commercial consumer and banking services. Through its bank subsidiary, Central Pacific Bank, the company operates 39 branches through-out Hawaii.
Fitch has downgraded and placed the following ratings on Rating Watch Negative.
Central Pacific Financial Corp.
--Long-term IDR to 'B' from 'BBB';
--Short-term IDR to 'B' from 'F2';
--Preferred stock to 'CC/RR6' from 'BBB-';
--Individual to 'D/E' from 'B/C'.
Central Pacific Bank
--Long-term IDR to 'BB-' from 'BBB';
--Long-term deposit to 'BB' from 'BBB+';
--Short-term IDR to 'B' from 'F2';
--Short-term Deposit to 'B' from 'F2';
--Individual to 'D' from 'B/C'.
CPB Capital Trust I, II, & IV
CPB Statutory Trust III & V
--Trust preferred securities to 'CC/RR6' from 'BBB-'.
The following ratings have been affirmed.
Central Pacific Financial Corp.
Central Pacific Bank
--Support at '5'
--Support floor at 'No Floor'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .
Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, New YorkKen Ritz, 212-908-0368Sharon Haas,
212-908-0362orMedia Relations:Cindy Stoller,
212-908-0526Email: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
