Waddell & Reed’s credit rating is lowered close to junk bond status

Customer withdrawals and the announced retirement of Waddell & Reed Financial chief executive Hank Herrmann led one agency to cut the company’s credit rating.

Moody’s Investors Service lowered its rating on the Overland Park-based mutual fund and investment company to Baa3, which is the lowest rating still considered investment grade. Bonds with ratings below that level are considered more speculative and commonly called high-yield or junk bonds.

Waddell & Reed told its staff and financial advisers that the rating change wouldn’t affect daily operations and that the company’s notes are held in private placements and don’t require the company to be rated by an agency.

“The downgrade is driven by sustained weakness in Waddell & Reed’s operating fundamentals,” a report from Moody’s this week said.

Investment returns for Waddell & Reed and Ivy funds generally have been below par, notably for its large Ivy Asset Strategy Fund, the report said. It added that one broker-dealer firm had suspended sales of Ivy Asset Strategy.

Moody’s also noted Waddell & Reed’s cost-cutting efforts, including layoffs, to maintain profits as fees decline from the drop in assets it manages for customers.

The report also said that there are risks when top management of a company changes and that recent changes at Waddell & Reed added to its negative outlook. Herrmann will be succeeded Aug. 1 by chief investment officer Philip Sanders. Company president Mike Avery is retiring at the end of this month.

This story was originally published June 10, 2016 at 12:04 PM with the headline "Waddell & Reed’s credit rating is lowered close to junk bond status."