The BBB-minus senior unsecured debt rating of CapitalSource Inc., Chevy Chase, Md., has been placed on Rating Watch Negative by Fitch Ratings in the wake of its announcement that it intends to convert into a real estate investment trust.The rating agency said CapitalSource's planned REIT conversion is driven by management's desire to lower the company's cost of capital and improve the efficiency of its equity. "While converting to a REIT is generally viewed as a credit negative for bondholders, in CapitalSource's case there are come offsets, specifically the revised loan-loss reserve policy, which makes this more of a credit neutral," Fitch said. "The Rating Watch action is driven by Fitch's concern regarding the execution of CapitalSource's REIT conversion, including the impact of paying a quarterly dividend and what, if any, changes will result in the company's business to support the dividend in connection with a higher level of common equity outstanding." Fitch can be found online at http://www.fitchratings.com.

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