UCFC Ratings Under Review

The ratings on United Companies Financial Corp., Baton Rouge, La., have been placed under review by Standard & Poor's and Duff & Phelps Credit Rating Co. in the wake of the subprime lender's announcement that it has retained Salomon Smith Barney to "seek a potential strategic partnership."S&P placed UCFC's ratings on Credit Watch with developing implications, which means the ratings could be raised, lowered, or affirmed depending on the outcome of the review. Duff & Phelps placed its UCFC ratings on Rating Watch--Uncertain. S&P said its action reflects concerns about UCFC's announcement that second-quarter earnings will be about $10 million lower than expected as a result of charges related to a writedown in its interest-only strip, and about "heightened competition in the subprime home equity markets as well as the declining trend in the company's profitability and asset quality measures in selective pools." Duff & Phelps also cited "the fundamentals of the subprime home equity lending business," higher prepayment levels in relation to prepayment assumptions, and "pressure on capital measures" stemming from declining profitability.