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Rating Action:

Moody's affirms the ratings of Man Strategic Holdings Limited (senior at Baa3); outlook remains negative

Global Credit Research - 29 Mar 2013

London, 29 March 2013 -- Moody's Investors Service, ("Moody's") has today affirmed all debt and preferred stock ratings (senior debt at Baa3) of Man Strategic Holdings Limited (formerly Man Group plc) ("Man"). The outlook for all of Man's ratings is negative. A complete list of Man's ratings is available at the end of this press release.

RATINGS RATIONALE

Man continues to face challenges in its core business, which include: (i) the ongoing decline in funds under management (FUM) from US$ 75.6 billion in 2008 to US$ 57 billion in 2012, despite additional FUM gained from the 2010 GLG and 2012 FRM acquisitions; (ii) a diminishing aggregate gross management fee margin from 230 bps in 2011 to 209 bps in 2012; (iii) reduced revenues from $1,735 million for the prior 12-month period ending December 2011 to $1,299 million for the 12-months ending December 2012; (iv) continuing market pressures on alternative asset management and the fund of hedge fund providers.

Man is in the process of taking several steps in an effort to improve its financial condition and profitability including: (i) reducing its borrowings through debt buybacks, with its recent tender announced on 26 March 2013 to buy back the remaining outstanding euro-denominated senior debt; (ii) improving of the assets on its balance sheet by selling its claims on the Lehman bankruptcy estate and reducing its proprietary investments and loans to funds; (iii) maintaining strong liquidity including cash and cash equivalent of $2,000 million at 31 December 2012; (iv) implementing cost reductions of US$100 million announced in July 2012, in addition to the US$95 million cost reduction completed in 2012, designed to bolster the company's profitability and reshape its operational infrastructure to support significantly smaller FUM than was previously envisaged; and, (v) strengthening the company's efforts to increase its distribution capacity in the North America.

The negative outlook for Man's ratings is due to several factors including: (i) uncertainty as to the company's ability to return to organic growth and stability of its FUM; (ii) organizational risks and uncertainty regarding the company's strategy due to several changes in executive management and investment professionals; (iii) execution risks associated with adapting the company's operational infrastructure to support lower FUM levels; (iv) the potential for additional goodwill impairments if underperformance of Man's products continues; and (v) pressure on the hedge fund business model more generally, where underperformance relative to investor expectations has called into question the sustainability of high fees.

What Could Change the Rating - Up

The following factors could exert upward pressure on the ratings:

- Sustained, organic growth in FUM with improvement in retention rate to above 80% over the next 18 months

- Sustained improvement in net operating profit and demonstration of the company's ability to enhance net income margins to above 25% over the next 18 months

- Material and sustained reduction in the proportion of balance sheet and liquidity dependent products

- Reduction in gross debt level with adjusted debt-to-EBITDA ratio to below 2 times

What Could Change the Rating - Down

The following factors could exert downward pressure on the ratings:

- Persistent fund performance below benchmarks

- Further falls in FUM

- Reputational damage as a result of inability to meet investor redemptions, deliver on margin calls or satisfy committed purchase agreements

- Significant change in product mix, which decreases overall profit margin

- Material increase in effective balance sheet leverage (defined as adjusted debt-to-EBITDA) exceeding 2.5 times

- Decline in EBITDA/interest coverage ratio to below 6 times and/or decline in net income margins to below 20%

Man Strategic Holdings Limited is an asset management company domiciled in the UK, with a strong market presence in the alternative investment management industry. The company had total FUM of US$ 57 billion and shareholders' equity of US$ 2.99 billion at 31 December 2012. Man incurred a statutory pre-tax operating loss of US$ $745 million for 2012 largely due to goodwill impairments of $837 million associated with GLG. Man completed its corporate reorganization by creating a new listed non-trading group holding company to access distributable reserves, which will provide it with ongoing flexibility to continue its previously stated dividend payment policy.

On 24 July 2012, Man announced a corporate reorganisation, according to which it formed for the Group a new holding company, called New Man, which is a non-trading listed company incorporated in England and Wales. New Man changed its name to Man Group plc on 6 November 2012. At the same time Man Group plc changed its name to Man Strategic Holdings, such that following the name changes the name of the ultimate holding company of the Group will remain the same. As a result, the name of the issuer of all of the company's debt and preferred securities has changed to Man Strategic Holdings Limited. There was no change to the trading activities and businesses of the Group as a result of the corporate reorganisation.

The last rating action on Man took place on August 21, 2012, when Moody's downgraded all of Man's ratings and changed the outlook to negative.

The following ratings were affirmed:

- Man Strategic Holdings Limited - Senior Unsecured -- Baa3, negative outlook

- Man Strategic Holdings Limited - Subordinated Debt --Ba1, negative outlook

- Man Strategic Holdings Limited - Perpetual Subordinated Capital Securities --Ba3(hyb), negative outlook

- Man Strategic Holdings Limited USD3 billion EMTN programme - Senior Notes -- (P)Baa3, negative outlook

- Man Strategic Holdings Limited USD3 billion EMTN programme - Dated Subordinated Notes -- (P)Ba1, negative outlook

- Man Strategic Holdings Limited USD3 billion EMTN programme - Undated Subordinated Notes -- (P)Ba1, negative outlook

- Man Strategic Holdings Limited USD3 billion EMTN programme - Junior Subordinated Notes -- (P)Ba2, negative outlook

- Man Strategic Holdings Limited USD3 billion EMTN programme - Short-Term Notes -- (P)Prime-3, negative outlook

The principal methodology used in this rating was Moody's Global Rating Methodology for Asset Management Firms published in October 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Soo Shin-Kobberstad
Vice President - Senior Analyst
Managed Investments Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yaron Ernst
MD - Managed Investments
Managed Investments Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms the ratings of Man Strategic Holdings Limited (senior at Baa3); outlook remains negative
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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