IndyMac Downgraded to ‘Junk’ by S

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Shares in IndyMac Bancorp Inc. dropped 2.7 percent in after-market trading Monday after the Pasadena-based lender had its credit rating cut to “junk” status.


Standard & Poor’s said that it is concerned about IndyMac’s “exposure to deteriorating housing markets,” and lowered its rating to “BB+/B” from “BBB-/A-3.”


Traditionally, when a company’s debt rating is downgraded from “investment” grade to “junk” status, it forces large pension funds and institutional investors to sell the debt because they are prohibited from holding such bonds. In addition, it costs companies more to borrow money as investors demand higher yields due to the greater perceived risk of the debt.


This adds yet another hurdle for the troubled lender. Last week, IndyMac said that it expected further losses until at least the second half of next year and rejected a shareholder proposal to raise more capital by buying back shares of the company from investors.


Shares in IndyMac closed up 3 cents in regular trading Monday but dropped 2.7 percent to $8.20 in after-market trading on the New York Stock Exchange.

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