Moody’s Investors Service has put the ratings of St. Petersburg, Fla.-based Raymond James Financial Inc. under review for a possible downgrade.
The reason is Raymond James’ announcement that it’s signed a deal to acquire Memphis-based Morgan Keegan & Co. Inc. from Regions Financial Corp. That $930 million deal was announced earlier this month and caps a more than six-month search by Regions for a buyer for its investment banking unit.
Moody’s said “the acquisition of Morgan Keegan will result in Raymond James having an increased debt burden and higher cash flow leverage – a departure from the firm’s historic financial profile. This action also reflects Moody’s concern that Raymond James has substantial execution risk in retaining financial advisors from Morgan Keegan’s private client franchise and the accompanying revenues generated by its producers.”
While the Morgan Keegan-Regions announcement included word that Regions is indemnifying Raymond James against all pre-closing activities, Moody’s went on to say it will “also examine to what extent Raymond James will be adequately protected against Morgan Keegan’s pre-closing litigation claims that may arise going forward (e.g. RMK Funds, ARS matters). Moody’s noted that it will also focus on understanding Raymond James’ strategy for the proposed combined capital market businesses and whether Raymond James will maintain its current agency-based focus.”