S&P Affirms American Realty Capital Properties (ARCP) Ratings Following Recent Bondholder Actions

Standard & Poor's Ratings Services said today its ratings on American Realty Capital Properties Inc. (Nasdaq: ARCP), including the 'BB' corporate credit rating and the 'BB+' issue-level ratings remain on CreditWatch with negative implications, pending the completion of board investigations and the external auditor review of the company's financial statements.

Today's update follows the recent announcement that the company's senior noteholder group agreed to not issue a notice of default before March 3, 2015, or one day after the March 2nd deadline agreed between the company and its bank lending group for submitting third quarter financial statements (as well as revised first- and second-quarter 2014 statements). In the event ARCP does not meet the March 2nd deadline and bondholders issue a notice of default on March 3rd, ARCP would have until March 20th to cure the default under the recent senior noteholder agreement. ARCP also purportedly received a notice of default from the trustee under the indenture governing it convertible notes. If the notice is valid, ARCP would have 60 days to cure the default by delivering the required financial statements. However, ARCP may elect on or prior to the 59th day to pay additional interest for a period of 180 days (0.25% per annum for 90 days and 0.5% for an additional 90 days), which would prevent the convertible noteholders from accelerating repayment of the convertible notes. ARCP expects to meet the March 2nd deadline, which would eliminate the risk of any defaults.

We continue to believe there is uncertainty regarding the company's ability to both manage and oversee the large portfolio that it has only recently assembled and the impact of the recent events on ARCP's access to and cost of equity and debt capital.

Standard & Poor's will seek to resolve the CreditWatch placement within the next 90 days, but this will depend upon a better understanding of possible outcomes from the various audits and investigations. We will review any potential disclosures upon the release of the board's investigation, any additional exposures from the completion of the forensic audit, and other management or governance changes that are being contemplated. Upon completion of our review, we could lower the corporate credit rating or leave the ratings unchanged.

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