S&P cuts Capital Impact

S&P said it lowered its issuer credit rating and long-term rating on Capital Impact Partners, DC’s notes to A from A+. At the same time, S&P removed the rating from CreditWatch, where it was placed with negative implications on Nov. 1. The outlook on all ratings is stable.

“The rating change is the result of a recalculation of net equity, and a resulting decline in total equity over the past five years given the growth in net assets,” said S&P credit analyst Ki-Beom Park, in a press release.

Because of an analytical error regarding the treatment of undrawn lines of credit, CIP’s net equity-to-assets ratio was overstated and appeared to be comparable with those of similarly rated peers. The recalculation results in a net equity-to-assets ratio averaging 7.6% between fiscal years 2017 and 2018, which the agency views as in line with the current rating after considering this ratio in conjunction with other key analytical factors.

Overall, the ratings reflect CIP’s specific credit strengths, including its strong history of loan performance, diverse asset base, and proactive management of its loan portfolio. “Meanwhile, we believe CIP’s weaknesses include lower capitalization and leverage ratios as growth in the corporation’s loan portfolio has largely been funded with debt, a dependence on nonrecurring grants and contributions that lead to income volatility, and exposure to a high balance of early financing loans,” S&P said.

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