Fitch Upgrades GFI's Unsecured Debt to 'BBB-' Following BGC Guarantee

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has today upgraded GFI Group, Inc.'s senior unsecured debt to 'BBB-' from 'BB+'. GFI's long- and short-term Issuer Default Ratings (IDRs) remain unchanged at 'BB+/B' and the Rating Outlook remains Positive.

KEY RATING DRIVERS

SENIOR UNSECURED DEBT

The upgrade reflects the introduction of an irrevocable and unconditional guarantee provided by BGC Partners, Inc. (BGC, 'BBB-/F3'; Stable Outlook) with respect to GFI's $240 million of senior unsecured debt due 2018. The guarantee ranks pari passu with BGC's senior unsecured obligations.

BGC's motivation for the introduction of the guarantee is to obtain a rating upgrade on GFI's existing $240 million of senior unsecured debt, which bears interest based on a ratings-based formula. Depending on the rating actions of other nationally recognized statistical rating organizations, the interest rate on GFI's debt may step down to 8.375% from 9.375%, which would result in annual interest savings of $2.4 million. BGC is the majority owner of GFI.

GFI's IDRs and Positive Outlook are unaffected at this time given that the guarantee is specifically applicable to the existing senior unsecured debt of GFI, and no other current/future indebtedness or obligations of GFI. For example, at March 31, 2015, GFI had $60 million outstanding under its bank credit facility. BGC's ratings are also unaffected by the assumption of the debt obligations, via the guarantee, as Fitch's analysis of BGC already considered BGC's leverage and interest coverage on both a consolidated (inclusive of GFI) and stand-alone basis.

Fitch continues to view GFI as a strategically important subsidiary of BGC and therefore, GFI's IDR is notched one notch below BGC's. Fitch's view of GFI as a strategically important subsidiary of BGC reflects the majority ownership and voting control of GFI by BGC and the strong financial and strategic synergies between the two companies. Fitch does not view GFI as a core subsidiary of BGC given the lack of an explicit assumption of all of GFI's current/future obligations by BGC and BGC's explicit statement to maintain, at this time, separately branded operations.

The Positive Outlook continues to reflect the potential for additional steps that might be taken by BGC and GFI over the Outlook horizon which could result in an equalization of the ratings between the two entities, such as a more formal integration of GFI, a broader guarantee of GFI's current/future obligations, extinguishment of all of GFI's unguaranteed senior obligations and/or cessation of operations as separately branded operations.

RATING SENSITIVITIES

SENIOR UNSECURED DEBT

Given the presence of an irrevocable and unconditional guarantee provided by BGC, GFI's senior unsecured debt rating is expected to move in step with any changes in BGC's ratings.

BGC's ratings could be negatively impacted by a failure to achieve planned cost synergies, or an inability to sustain EBITDA or reduce debt levels, which leads consolidated leverage to increase above 2.5x or consolidated interest coverage to fall below 6.0x, on a sustained basis. Increased shareholder-friendly activities, including increased dividends or outsized share buybacks that materially impact the company's liquidity would also be viewed negatively from a rating perspective.

BGC's ratings are equalized with those of its parent, Cantor Fitzgerald, L.P. (Cantor, 'BBB-'; Stable Outlook), as Fitch considers BGC to be a core subsidiary of Cantor due to the significant operational and financial linkages between the two companies. As a result, any changes in Cantor's ratings could also result in changes to BGC's ratings.

Positive rating momentum for BGC, although limited in the medium term, could be driven by the successful integration of GFI and a sustained increase in profit margins, while maintaining conservative leverage and interest coverage metrics.

Fitch has taken the following rating action:

GFI Group, Inc.

Senior Unsecured Debt upgraded to 'BBB-' from 'BB+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987828

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987828

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150713006211/en/

Fitch Ratings
Primary Analyst
Nathan Flanders
Managing Director
+1-212-908-0827
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Committee Chairperson
Sean Pattap
Senior Director
+1 212-908-0642
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
[email protected]

Source: Fitch Ratings

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