S&P: Arcapita Bank Long-Term Rating Lowered To 'BB'; Remains On CreditWatch Negative; 'B' Short-Term Affirmed

Press Release

PARIS April 6, 2009--Standard & Poor's Ratings Services said today that it lowered its long-term counterparty credit rating on Bahrain-based Arcapita Bank to 'BB' from 'BB+' and kept the rating on CreditWatch with negative implications where it was initially placed on Jan. 28, 2009. At the same time, Standard & Poor's affirmed its 'B' short-term rating on Arcapita.

"The rating action reflects the very weak investment climate, which has challenged Arcapita's business model and has decreased the value of its assets in our view," said Standard & Poor's credit analyst Mohamed Damak. "In this light, we believe Arcapita's leverage indicators have weakened, which has put pressure on its credit profile."

Arcapita has reported that it is implementing a set of measures to reduce its leverage and improve its liquidity position. It has already:

--Raised $300 million through two-year facilities from strategic investors;

--Raised $100 million of capital from a strategic shareholder in the Gulf; and

--Sold and leased-back its head office and a related piece of land in a $400 million transaction.

We believe these measures have alleviated Arcapita's immediate short-term liquidity pressure. Additional initiatives the bank reports that it will implement in the near-term include a rights issue and an extension of its debt maturity profile.

In our view, if the bank successfully completes the rights issue, this would, all other factors being equal, support the current rating. However, we still believe that the business climate will remain challenging and that there is a potential for write-downs in Arcapita's investment portfolio. The rating reflects Arcapita's stand-alone credit profile and does not include any uplift for extraordinary external support. At the same time, Standard & Poor's recognizes that support from shareholders has been significant and Arcapita's financial flexibility is a positive rating factor.

"Arcapita's capacity to execute the planned remaining measures to reduce leverage will be critical for the ratings in the short term," said Mr. Damak.

The successful implementation of these measures, all other factors being equal, should support the current ratings. However, we would lower the long-term rating by one notch if Arcapita is unable to raise the amount of the planned capital increase or in any other way improve its financial position to bring it in line with rating expectations. We expect to resolve the CreditWatch status in the next few weeks, following consideration of the above factors.

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