Executives at Marsico Capital Management LLC, Denver, have restructured $2.7 billion in debt as they fight for their company's survival three years after a highly leveraged deal to buy back the firm from Bank of America.
The restructuring, which closed Nov. 10, comes as assets under management have plunged at the growth equity shop.
Assets fell to $43.4 billion on Aug. 31, more than 60% off the peak of $110 billion on Oct. 31, 2007. Assets under management stood at $50.5 billion as of Nov. 10, a drop of more than 54% from the high.
The depleted AUM meant the fees generated wouldn't support the debt load, said analysts at rating services Standard & Poor's and Moody's Investors Service.
In interviews, Marsico executives said they have now put the company on a more solid footing with the financial reorganization.
They said the restructuring was necessary because of huge stock losses that mirrored equity market declines in 2008. The company also was affected by outflows from clients.
“We needed a debt restructuring to ensure we had the cash flow needed to maintain our service level to our customers,” said Marsico President Christopher Marsico.
But both S&P and Moody's consider the restructuring a default and have negative outlooks for the company. They have downgraded Marsico Capital's holding company, formerly known as Marsico Parent Co. LLC, to near the bottom of their rating scale.
Ultimately, the restructuring gives the firm more breathing room to show it can prosper, said Deven Kapoor, an analyst with Moody's in New York.
“They have gained some time with this restructuring to show they can outperform and increase the AUM,” said Mr. Kapoor.
On the other hand, he said, “If things get worse for equities or for their funds, it could get very challenging for them.”
The struggles at Marsico Capital Management mirror those at other equity boutiques attempting to weather the move out of equities by institutional investors following the financial crisis.