S&P downgrades Och-Ziff

S&P said it lowered the issuer credit ratings on Och-Ziff Capital Management Group LLC to BBB- from BBB.

The agency also downgraded the issuer credit ratings to BBB- from BBB on OZ Management LP, OZ Advisors LP and OZ Advisors II LP and Och-Ziff Finance Co. LLC.

The outlook is negative.

The company’s senior unsecured debt ratings also were lowered to BBB- from BBB.

The company recently announced that it reached settlements with the Department of Justice and the Securities and Exchange Commission, resolving their investigations into the company's former private investment business in Africa and a 2007 investment by the Libyan Investment Authority in certain of the company's funds.

Och-Ziff will pay penalties of $412 million, amounts that were previously reserved by the company and through a $400 million preferred shares issuance, S&P said.

The agency said the preferred issuance will weaken the company's financial risk profile and lead to a debt-to-adjusted EBITDA ratio of between 1.5x and 2x over the next two years.

Och-Ziff also continued to experience asset outflows and challenged investment performance in the last 12 months due to the declining investor appetite for hedge funds and an overhang caused by the pending investigation, S&P added.

The perpetual preferred units are considered hybrid capital with intermediate equity content, the agency said.

The negative outlook reflects an expectation that Och-Ziff will be downgraded in the next 18- to 24-months if continued significant outflows and lagging investment performance results in further substantial reduction in assets under management and EBITDA, S&P said.

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