Fitch Ratings downgraded the long-term issuer default rating, and senior secured debt and senior unsecured debt ratings of BlackRock Capital Investment Corp. to BB+ from BBB- and placed the ratings on rating watch negative.
The downgrade came after the company's second-quarter earnings results, which showed that legacy investments continued to experience challenges, resulting in $15.3 million in net realized and unrealized losses in the first half of the year.
In its Aug. 7 report, Fitch also noted that BlackRock Capital's net investment income coverage of the dividend went down to 90.6% in the second quarter, continuing a trend of below-100% coverage over the past year. BlackRock Capital is cutting its quarterly dividend to 14 cents per share from 18 cents per share.
The rating agency also views the business development firm's leverage negatively, given the company's continued exposure to equity and other underperforming legacy investments, and execution risk associated with its long-term strategy of exiting remaining legacy positions and rebalancing the portfolio toward more first-lien, yielding debt investments.
The negative watch reflects what Fitch sees as the company's inadequate cushion on its minimum shareholder's equity covenant. The rating agency said the cushion is not enough to account for potential realized or unrealized losses, which could result from credit deterioration or market volatility, particularly while equity investments and other underperforming legacy investments remain in the portfolio.