S&P: Stearns on negative watch

Standard & Poor’s said it placed the B+ issuer credit and senior secured debt ratings on Stearns Holdings LLC on CreditWatch with negative implications.

The CreditWatch placements follow news that Stearns reached an agreement with Blackstone Group LP to sell 70% of the company to the financial sponsor.

S&P said it views the company’s plan to be controlled by a financial sponsor as a negative rating factor.

A pessimistic view is based on the intrinsic characteristics and aggressive nature of a financial sponsor’s strategies, which generally include short-term holding periods and the use of debt to maximize shareholder returns, the agency said.

Although the company’s current indentures limit additional indebtedness to a degree, over time S&P said it believes Blackstone could refinance the debt and increase the firm’s leverage.

Since Stearns is now planning to be controlled by Blackstone, the agency said it believes the company could pursue a more aggressive financial posture than what the current leverage might indicate.

At the same time, the agency noted that its recent earnings have generally exceeded expectations and lowered the company’s leverage over the past year.

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