KBRA Affirms Ratings for BGC Group, Inc.; Revises Outlook to Positive

KBRA affirms the issuer and senior unsecured debt ratings of BBB for New York, NY-based BGC Group, Inc. (“BGC”), a diversified holding company and market leader specializing in global wholesale brokerage, complemented by a growing financial technology platform that offers an array of products and services to various types of clients, including governments, corporations, and financial institutions, such as banks, broker-dealers, and investment advisors and funds. The Outlook for the ratings is revised to Positive from Stable.

Key Credit Considerations

The Positive Outlook incorporates BGC’s long-standing track record of disciplined financial leverage, liquidity funds management practices, and reasonably stable earnings results, together with the favorable operating environment, which should portend continued buoyant trading volumes. An outcome of the recent changes within executive management is a heightened focus on operational activities and efficiency, key elements to a business that is increasingly technologically oriented (e.g., electronification of trading).

Profitability, while modest at times, has improved in recent periods in conjunction with the overall increase in capital markets trading volumes and volatility, together with a steady contribution from the proprietary Fenics electronic suite of businesses, as well as a growing contribution from energy, commodities, and shipping brokerage businesses. High compensation expenses (cash and non-cash) have historically weighed on bottom line earnings; adjusted for equity-based compensation, profitability is robust. KBRA anticipates that the unrelenting growth in global debt – especially governmental – will create ongoing brokerage, trading, and hedging opportunities within BGC’s key markets businesses and its newly created exchange enterprise (FMX).

Leverage, perennially managed in the 2.5x range (Debt/Adj. EBITDA), further supports the existing ratings. BGC remains adequately funded; unsecured debt is well laddered and has been issued at a reasonable cost. In addition, cash coverage of short-term obligations remains adequate.

Rating Sensitivities

In consideration of BGC’s track record of disciplined financial leverage and liquidity management practices, which is likely to be maintained, and the prospect for a continued favorable operating backdrop, the ratings would likely be raised by one level during the next 12-24 months, which would allow for KBRA to more fully evaluate the new management team’s operational effectiveness. Although not anticipated, the ratings would most likely come under pressure if KBRA detected a potential secular erosion in the operating fundamentals of the wholesale brokerage business.

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