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Rating Action:

Moody's downgrades and puts on review certain Marsico ratings

13 Oct 2010

New York, October 13, 2010 -- Moody's Investors Service downgraded the ratings of Marsico Parent Company, LLC's (Marsico Parent) senior secured bank facilities to Caa2 from Caa1and put them on review for further downgrade. In addition, the rating of Marsico Parent Holdco, LLC's (Parent Holdco) senior notes was downgraded to C from Ca with a stable outlook. In the same rating action, Moody's also put the Caa3 corporate family rating (CFR) of Marsico Parent on review for possible downgrade. Moody's affirmed Marsico Parent's senior unsecured notes at Ca and changed the outlook to stable from negative. Moody's stated that the downgrades reflect its estimate of the company's reduced corporate valuation caused by the continuing challenges Marsico faces in stabilizing its Assets under Management (AUM). Marsico initiated a debt restructuring plan on October 8, 2010 to decrease its debt leverage and fixed cash expenses, which it believes will support operations and provide it with the financial flexibility to execute on its business plan and create value.

The following ratings were impacted:

Marsico Parent Company, LLC:

- Corporate family rating (CFR) to Caa3 Rating Under Review for possible downgrade from Caa3(negative outlook);

- $1,024 million Senior secured bank facilities and $25 million revolving credit line to Caa2 Rating Under Review for possible downgrade from Caa1(negative outlook);

- $600 million Senior subordinated notes were affirmed at Ca; outlook changed to stable from negative.

Marsico Parent Holdco, LLC (Parent Holdco):

- $550 million Senior notes rating to C from Ca; outlook changed to stable from negative

Marsico Parent is the parent of Marsico Capital Management, LLC (Marsico Capital) and Marsico Fund Advisors, LLC (together, Marsico or the Company). Marsico Capital Management is a Denver-based asset management firm offering investment services to institutional and retail investors. The company held approximately $47.5 billion in AUM as of September 30, 2010. The last rating action was taken on December 10, 2009, when Moody's downgraded Marsico Parent's CFR to Caa3 from B3 resulting in rating downgrades of its secured bank credit facilities to Caa1 from B1and its senior unsecured notes to Ca from Caa1. The rating of Parent Holdco's senior notes was also downgraded to Ca from Caa2.

TRANSACTION DETAIL

Under the restructuring plan announced by the company, $550 million of debt outstanding at Parent Holdco as well as $397 million notes and $119 million preferred stock issued by Marsico Parent Superholdco, LLC (Superholdco) will be converted into the common equity of Marsico Holdings, LLC (Newco), a newly created entity, which is intended to hold essentially all of the equity of Marsico's operating companies after completion of the restructuring. Each class will receive a 16%, 2% and 1% stake, respectively, in the Newco assuming 100% participation. Moody's does not rate the debt and preferred issued by Superholdco.

Additionally, the Company is offering to exchange $600 million debt issued by Marsico Parent due in 2016 for $600 million of notes maturing in 2020 issued by Newco. The interest on the new notes will vary between the applicable federal rate (currently 3.61%) and and an equivalent rate of 15% based on the company's performance. Subsequent to January 2015, Newco has the option to make payments-in-kind for interest payments of 11.625%. Marsico Parent note holders will also get a 30% equity stake in Newco.

The restructuring also includes an amendment to the terms of the Marsico Parent and Marsico Holdings, LLC's $1.024 billion bank senior secured bank line. While the interest rate and term of the term loan under the proposal remain unchanged, the company expects a reduced financial covenant requiring at least $30 billion in AUM, down from $42 billion, in exchange for a 1% increase in quarterly amortization payments. Marsico expects at least 95% of the Marsico Parent note holders and more than 66% of the Parent Holdco and Superholdco note holders to accept the exchange offer. Marsico believes it will be successful in closing the exchange offer based on commitments received to date.

RATINGS RATIONALE

In Moody's opinion, the debt restructuring and the exchange offer is intended to avoid default on Marsico Parent senior subordinated notes and Parent Holdco's senior notes. The transaction, if completed, would constitute a distressed exchange on these notes, which is an event of default according to Moody's. While the extent of ultimate recoveries remains uncertain at this point, Moody's expects the losses on promised principal and interest on the Marsico Parent's senior subordinated notes on the Parent Holdco notes to be significant

The downgrades of the senior secured ratings to Caa2 reflects the increased probability of material credit losses for Marsico Parent's bank debt holders to the extent that the Company's announced exchange, if consummated, is unsuccessful in stabilizing the company. Marsico's credit profile continues to be challenged by persistent net outflows, poor relative investment performance during 2007-2009 period, and volatile equity markets. Furthermore, absent a sustained improvement in its funds' investment performance, there exists a real possibility that the company may lose sub-advisory and institutional relationships.

Moody's recognizes the positives resulting from the restructuring including reduced overall debt levels, cash interest, and amortization requirements of junior stakeholders as well as a greater cushion relative to financial covenants on its bank debt. These changes will allow Marsico time to demonstrate improved investment performance, recover financially, and grow AUM without covenant pressure.

These benefits must be weighed against the execution risk and the possible distraction of the debt restructuring plan to Marsico's clients, employees, and other key relationships. Whether, and to what extent, the proposed debt restructuring plan will be supportive of Marsico and its credit profile is as yet uncertain. Among the factors considered by Moody's during the review period will be the consummation of the restructuring plan and its impact on Marsico's clients and the operations of the Company.

The principal methodology used in rating Marsico was "Moody's Global Rating Methodology for Asset Management Firms" published in October 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information. Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Deven Kapoor
Analyst
Global Managed Investments Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Daniel Serrao
Senior Vice President
Global Managed Investments Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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New York, NY 10007
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Moody's downgrades and puts on review certain Marsico ratings
No Related Data.
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