Standard & Poor's just rated Calamos Investments for the first time ever, giving the Naperville, Illinois-based firm BBB+ with a negative outlook.

"Should net outflow stabilize, we could revise the outlook back to stable," stated S&P analyst Chris Cary. "While Calamos' strong cash flow generation provides significant comfort, if overall net flows do not stabilize over the next one to two years, the rating could be lowered."

Cary also Calamos for paying down $400 million of its $525 million in debt in the fourth quarter of 2008.

The news from S&P came to light even as Calamos released its latest 10-K filing. The firm managed $24.040 billion at the end of 2008 (including $17.498 billion in mutual funds), down from $46.208 billion at the end of 2007 (including $34.835 billion in mutual funds).

Company Press Release

NEW YORK (Standard & Poor's) March 12, 2009-- Standard & Poor's Ratings Services today said that it has assigned its 'BBB+' credit rating on both Calamos Holdings LLC (Calamos) and the firm's outstanding long-term debt. The outlook is negative.

The ratings reflect the company's strong balance sheet and cash flow generation. The negative outlook reflects our view of the current operating environment, recent net outflows, and Calamos' investment performance.

"Should net outflow and performance stabilize, we could revise the outlook back to stable. Further, we anticipate that the firm's recent focus on its distribution network will bear fruit throughout the year--particularly for the two largest funds--but also for the convertible fund, which Calamos reopened for investment and the long/short equity offering. While Calamos' strong cash flow generation provides significant comfort, if overall net flows do not stabilize over the next one to two years, the rating could be lowered," said Standard & Poor's analyst Chris Cary.

While its long-term investment performance remains strong, its one-, three-, and five-year performance metrics trail the S&P 500 Index reading for most funds. This has contributed to a 48% decline in AUM over the past year and a decline in earnings.

Despite diversification efforts, Calamos still has significant revenue concentrations related to its three largest funds, which represented 49% of the firm's assets under management (AUM) as of Dec. 31, 2008.

Management remains focused on reducing its reliance on the larger funds and is actively introducing new products/strategies. In 2008, the firm introduced its Evolving World Growth Fund, which has $19 million in AUM, along with a 130/30 equity strategy ($16 million AUM). While it may take some time for Calamos to diversify its revenue stream, we view its diversification strategy as a positive factor.

During fourth-quarter 2008, Calamos reduced leverage significantly by paying down $400 million of its original $525 million outstanding debt. The reduced debt resulted in a 2008 EBITDA-to-interest coverage of 5.85 and a total debt-to-EBITDA ratio of 0.63. The debt reduction was funded by the sale of investment holdings. However, Calamos' remaining investment holdings totaled $274 million as of Dec. 31, 2008--more than double the amount of remaining outstanding debt.

Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.

Correction: A previous version of this story mistakenly labeled the new rating a downgrade. According to a Calamos spokesman, this was the first time S&P ever rated Calamos.

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