S&P cuts Bear Stearns on cash crunch, may cut again
NEW YORK (Reuters) - Standard & Poor's on Friday cut its ratings on Bear Stearns Cos and said it may cut them again, after the bank said a cash crunch forced it to turn to the Federal Reserve and JPMorgan Chase for emergency funds.
The 28-day emergency line of finance came just days after Bear, which has been hard-hit by its heavy exposure to the faltering U.S. mortgage market, had dismissed market rumors of a cash crunch and said it still was a healthy player in the global web of trading and finance. For details, see
S&P cut Bear Stearns' counterparty credit rating three notches to "BBB," the second-lowest investment grade, from "A." It also cut Bear's senior unsecured debt to the same level, and cut its preferred stock rating to "BB-plus," one level below investment grade.
Counterparty credit ratings reflect how well a company can meet its financial obligations with customers, trading partners or other parties.
"The ratings are based on our expectation that Bear will find an orderly solution to its funding problems," S&P said in a statement. "However, although we view the liquidity support to Bear as positive, we consider it a short-term solution to a longer term issue that does not entirely affect Bear's confidence crisis."
"We also remain concerned about Bear's ability to generate sustainable revenues in an ongoing volatile market environment," S&P said. "The ratings could be lowered further if there is a failure to stabilize liquidity or to achieve a satisfactory longer term funding structure."
The cost to insure Bear's debt with credit default swaps rose to a record 765 basis points, or $765,000 per year for five years to insure $10 million in debt, from 685 basis points before the announcement, according to broker Phoenix Partners Group.
(Reporting by Karen Brettell; Editing by Chizu Nomiyama)
