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Moody's cuts all Refco ratings
Moody's Investors Service said it downgraded all ratings of Refco Group Ltd., LLC, including the long-term corporate family rating to Caa2 from B2, senior secured bank credit facility rating to Caa2 from B2 and senior subordinated debt to Ca from Caa1.
The ratings remain on review for downgrade.
Refco Finance Inc., which is a wholly-owned special purpose finance subsidiary of Refco, and is co-issuer of the senior subordinated debt, also was downgraded to Ca from Caa1.
The action follows Refco's announcement that its non-regulated subsidiary, Refco Capital Markets Ltd., no longer has sufficient liquidity to maintain operations and that the company has instituted a 15-day moratorium on all activities of the subsidiary.
Moody's said these actions are likely to lead to substantial erosion in the franchise value and earnings capacity of the company. As a result, Moody's said it believes the likelihood of default has risen sharply.
If Refco avoids default, the weakened earnings outlook for the firm will make it more difficult for the company to service existing debt and generate capital to absorb potential future litigation charges, Moody's said.
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