Main Street Capital Corp. Rating Lowered To 'BBB-' On COVID-19 Related Economic Impact; Outlook Stable

  • We expect the economic impact of the COVID-19 pandemic to result in increased credit losses, increased calls on liquidity to fund commitments, and adverse financing conditions for business development companies.
  • In addition, Main Street Capital Corp.'s loans on nonaccrual status have also risen over the past year.
  • As a result, we are lowering the issuer credit and senior unsecured debt ratings on the company to 'BBB-' from 'BBB'.
  • The stable outlook reflects our expectation that the company will operate with total debt to adjusted total equity (ATE) of less than 1.0x, a substantial cushion to the minimum 200% asset coverage ratio, and debt (excluding Small Business Investment Co. [SBIC] debt) to reported equity below 0.85x.
TORONTO (S&P Global Ratings) March 24, 2020--S&P Global Ratings said today it lowered its issuer credit and senior unsecured debt ratings on Main Street Capital Corp. (MAIN) to 'BBB-' from 'BBB'. The outlook is stable.
The downgrade primarily reflects increased risk in MAIN's investment portfolio, in our view. We believe MAIN's investment portfolio companies in certain industries are exposed to the disruptions associated with the coronavirus pandemic, potentially resulting in increased losses and higher nonaccruals this year. We expect increased stress in industries dependent on consumer discretionary spending (retail, leisure, transport/travel, and infrastructure) or supply chains (autos, technology, and commodities), and in energy.
The stable outlook reflects MAIN's very strong capital position, long track record of good performance, and diversity of funding sources. Over the next 12 months, we expect the company to operate with total debt to ATE of less than 1.0x, a substantial cushion to the minimum 200% asset coverage ratio, and debt (excluding SBIC debt) to reported equity below 0.85x.
We could lower the ratings in the next 12 months if debt to ATE were to increase above 1.0x or if the company significantly increases its equity investments (on a cost basis). We believe that equity investments are more illiquid than typical business development company investments and could show greater volatility during times of stress. Substantial deterioration in the investment portfolio could also lead to a downgrade.
An upgrade is not likely until after the COVID-19 pandemic and the resulting economic downturn subsides.
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