NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns an issuer rating of BBB for New York, NY-based and privately held Cantor Fitzgerald, L.P. (“Cantor” or “the firm”). The Outlook for the rating is Stable. Cantor is a full-service, globally diverse capital markets and investment banking firm with controlling stakes in wholesale finance brokerage and commercial real estate brokerage and services companies.
The rating is underpinned by management’s long record of producing mostly consistent operating results, adapting to regulatory changes and market evolution, and ongoing emphasis to enterprise risk management. The firm’s well-developed and highly disciplined risk management apparatus has served it well through time, including during the recent market turbulence spawned from COVID-19.
A key rating consideration is also Cantor’s lower risk business model. A hallmark of the franchise is that a large percentage of revenues are based on agency brokerage commissions (inter-dealer financial and commercial real estate services) and flow trading at the broker-dealer that collectively obviate the need to take meaningful balance sheet asset risk. In addition, the other key source of revenue emanates from the firm’s collateralized finance business. While this book is relatively large in terms of assets, it is collateralized predominately with U.S. government securities, short-duration, and well matched from a funding standpoint.
Although bottom-line profitability has been comparatively low for the rating category over time, as a result of high compensation expense, KBRA recognizes that a substantial component of compensation is variable and non-cash. KBRA believes that Cantor possesses the flexibility to adjust compensation as circumstances warrant.
KBRA evaluates the firm’s liquidity management policies and practices as a source of strength to the rating. Cash coverage of short-term obligations and liquid asset coverage of unsecured debt is solid.
Leverage by traditional broker-dealer models is modest. High shareholder and partner distributions have eroded book capital in recent years, however, and could pressure the rating if the trend continues.
KBRA acknowledges that exposure to the cyclical real estate sector from its consolidation of KBRA BBB- rated Newmark Group (NASDAQ: NMRK) comprises a significant portion of revenues. While the commercial real estate services business is transaction or flow oriented (brokerage commissions, real estate management and advisory, loan servicing, etc.), it is nevertheless tied to real estate prices and values that can affect transaction volume and other real estate activities. There is also a risk that certain real estate sectors, including multifamily, could be adversely affected by changing corporate and consumer behavior induced by COVID-19.
KBRA continues to monitor the effects of COVID-19. Please refer to our COVID-19 coverage section here.
The ratings are based on KBRA’s Securities Firms Global Rating Methodology published on March 8, 2018.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
Shannon L. Servaes, CFA, CPA, Managing Director (Lead Analyst)
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Ian Jaffe, Managing Director
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Joe Scott, Managing Director (Rating Committee Chair)
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Nish Kumar, Senior Director
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