NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns senior unsecured debt and issuer ratings of BBB- to Cowen Inc. (“Cowen” or “the company”). In addition, KBRA assigns issuer ratings of BBB to Cowen’s subsidiary broker-dealers, Cowen and Company, LLC, Cowen Prime Services, LLC and Cowen Execution Services, LLC. The Outlook for all ratings is Stable.
Cowen has a well-articulated and rational business strategy focusing on core strengths with selective expansion in businesses with favorable returns on economic capital. KBRA considers Cowen’s business mix to be comparatively low risk including brokerage and underwriting of liquid products (primarily listed equities), M&A advisory and investment management. Cowen’s investment management segment is increasingly focused on strategies linked to core competencies such as healthcare and sustainability. The company has very limited exposure to less liquid, potentially riskier trading products, such as high yield debt, leveraged loans, and bespoke derivatives. Legacy non-core investments are being reduced, thereby decreasing balance sheet risk and freeing up capital. Daily liquidity and capital are considered by KBRA to be conservatively managed with moderate near-term debt maturities and no reliance on short-term debt obligations or significant market-based funding.
In recent years, profitability improved in tandem with execution of management’s strategy and favorable conditions in key markets. Nonetheless, profitability still generally lags higher-rated institutions. Cowen has a less diverse business mix by product and geography as well as a smaller scale of operations compared with large industry competitors. Significant transaction volume declines in key industries such as healthcare and biotech could certainly affect profitability, although Cowen is more diverse and resilient than in the past. In the event of a sizeable market decline and lower market-related volumes, revenue generation could decrease significantly (in common with many peers). However, KBRA believes this “revenue risk” will unlikely translate to sizeable bottom line losses due to the absence of large trading positions and other outsized balance sheet risks. In addition, Cowen’s financial flexibility is enhanced by a large level of variable costs. Cowen Inc.’s ratings are one notch below the ratings of its broker-dealer subsidiaries as Cowen Inc.’s debt is structurally subordinated to the obligations of these SEC regulated operating entities.
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The ratings are based on KBRA’s Securities Firm Global Rating Methodology published on March 8, 2018.
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Joe Scott, Managing Director
Ian Jaffe, Managing Director