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Fitch Downgrades BankAtlantic Bancorp, Inc's L-T IDR to 'CC'

^{Published on 2010-09-16 09:05:44 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has downgraded the long-term Issuer Default Ratings (IDRs) of BankAtlantic Bancorp. (NYSE:BBX) to 'CC' from 'B-' and its primary operating subsidiary, BankAtlantic FSB (BFSB) to 'CC' from 'B+. The 'CC' long-term IDR indicates a high default probability. A complete list of rating action follows at the end of this release.

Fitch believes that BBX will likely require external capital support given the high level of credit costs that continue to impact BBX's financial performance and erode its existing weak level of tangible common equity, which stood at just 1.39% at June 30, 2010. Although BFSB's regulatory capital levels remain 'well-capitalized', Fitch believes the company needs additional capital in order to provide absorption for future losses, particularly since earnings generation on a pre-provision net revenue (PPNR) basis is weak. Furthermore, Fitch incorporates the view that with the passage of the Dodd-Frank Act, BBX will be subject to holding company regulatory capital requirements in the future; thus, given the very low level of capital at BBX and the ongoing credit challenges at BSFB, the company may need to boost capital levels more than anticipated.

To date, BBX has sought various ways to boost capital and shore-up its balance sheet such as reducing its assets and repaying borrowings, adding about $96 million in new equity from common stock share and rights offerings, and unsuccessfully trying to repurchase its trust-preferred securities through a cash tender offer. Most recently, BBX has also announced the sale of its 19 Tampa branches with about $400 million in deposits. Fitch believes the sale will have marginal benefits and incorporated this potential transaction into its current rating action. Further, BBX has also filed a shelf registration to raise additional common equity through Class A common stock issuance.

Fitch recognizes that recently a few community banks that are facing operating challenges have successfully executed equity raises. And although BBX has an attractive deposit franchise, Fitch believes its capital raising efforts may be difficult to execute, given the dual common stock ownership structure. Presently, BFC Financial (NYSE: BFF) has 71% of total voting power through its Class B shares with a 45% ownership interest. Further, Alan Levan is the Chairman of the Board and CEO for both BBX and BFF. To the extent the company seeks outside capital from third-party investors, given this ownership structure, this may be more challenging. Fitch's ratings do not incorporate any additional support coming from BFF or Mr. Levan.

The bank level downgrade reflects the weak operating performance due to continued credit deterioration given the severe decline in collateral values in the Florida market. Further, it reflects Fitch's view that BBX will also experience asset quality challenges stemming from its $1.4 billion residential book and its $630 million home equity portfolio. Given its geographic concentration in Florida, credit trends have not stabilized. Fitch also notes that BBX's CRE portfolio is concentrated with large lending relationships. BBX's Texas Ratio (defined as NPL/Tangible Equity plus Loan loss reserves) hit a high of 203% for June 30, 2010. As part of Fitch's analysis, Fitch reviewed BBX's CRE exposures and applied various stress scenarios. (For additional information, see the Fitch report 'U.S. CRE Exposure Review', dated Nov. 16, 2009).

Fitch assigns Recovery Ratings to individual security issues where the IDR of the issuer is rated in the 'B' or below category. As such, Fitch has assigned a Recovery Rating (RR) of 'RR3' to the uninsured long-term deposits, which implies a recovery between 51% -70%.

Ratings could be downgraded further if BBX's is unable to raise additional capital to address potential needs. Conversely, BBX's ratings could be positively affected if the company were to successfully execute a meaningful equity raise.

Fitch has downgraded the following ratings:

BankAtlantic Bancorp
--Long-term IDR to 'CC' from 'B-';
--Short-term IDR to 'C' from 'B';
--Individual Rating to 'E' from 'D/E'.

BankAtlantic FSB
--Long-term IDR to 'CC' from 'B+';
--Long-term deposits to 'CCC/RR3' from 'BB-';
--Short-term IDR to 'C' from 'B';
--Short-term deposits to 'C' from 'B';
--Individual to 'E' from 'D'.

Prior to today's downgrades the Outlook for the above ratings was Negative. Fitch does not assign Rating Outlooks to classes rated 'CCC' or below.

Fitch has affirmed the following ratings:

BankAtlantic Bancorp
--Support Rating at '5';
--Support Floor at 'NF'.

BankAtlantic FSB
--Support Rating at '5';
--Support Floor at 'NF'.

Additional information is available at [ www.fitchratings.com ].

This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site at [ www.fitchratings.com ] and specifically includes:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);
--'Bank Holding Companies' (Dec. 30, 2009).
--'Recovery Ratings for Financial Institutions' (Dec. 30, 2009).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685 ]
Bank Holding Companies
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324 ]
Recovery Ratings for Financial Institutions
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493330 ]

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