S&P cuts Metris

Standard & Poor's downgraded Metris Cos., Inc. including cutting its $100 million 10% senior notes due 2004 and $150 million 10.125% senior notes due 2006 to CCC- from CCC+. The outlook is negative.

S&P said the downgrade reflects the ongoing challenge management faces in returning the company to profitability and reestablishing access to longer-term funding sources.

Of immediate concern is the mounting funding pressure to which the company is subject. The chief regulator of Metris' subsidiary bank has requested that all FDIC-insured deposits, projected to amount to $565 million at Sept. 30, 2003, be eliminated or the associated risk to the FDIC be removed by the same date, S&P said.

While Metris projects a sizable cash position of $365 million at the time of the deadline, the company will need to find alternative funding for approximately $200 million of receivables at the bank.

Currently, the company appears to have available only renewable funding sources (conduits or secured lending facilities) or asset sales. While some flexibility is afforded by a strong capital base and the availability of unencumbered assets, the company's reliance on short-term funding sources and stop-gap measures such as asset sales does create a significant liquidity risk.

If losses continue at elevated levels or if the company finds its funding options narrowing further, the ratings could be lowered again, S&P said.

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