Two top finance companies junked

Standard & Poor's has stripped both South Canterbury Finance and Marac of their investment grade ratings.

Friday, August 14th 2009, 5:34AM

The research house yesterday lowered the ratings on both companies from BBB- to BB+ which takes them from "investment grade" to what S&P calls "speculative" but what others call "junk bond" status.
In making the announcements S&P released two remarkably similar press releases. The wording of both blamed the downgrades on the companies' exposure to the property development sector.
"The downgrade reflects our view that SCF's credit profile has weakened because of asset quality pressures within the New Zealand property development sector," Standard & Poor's credit analyst Derryl D'silva said. "In our view, this deterioration is outside our tolerances of the ‘BBB-' rating and has occurred amid a weak industry environment, where the potential for lending losses is exacerbated by the softening trends in the New Zealand economy. The property development sector is currently experiencing very low business confidence and faces reduced investor demand and limited refinancing options."

It said the same about Marac.
However, S&P also praised both companies saying SCF and Marac were some of the "stronger finance companies in New Zealand" and that they both had strong market positions.
A key difference was that S&P warned SCF it could be in for further downgrades. A primary trigger related to an underwriting proposal.
"If SCF's underwriting agreement with its major shareholder is not executed successfully, the ratings could be lowered to reflect diminution in key shareholder support. The ratings may also be lowered by one or more notches should SCF fail to address pressures concerning its liquidity."
On the plus side it said that if "SCF were able to overcome these challenges and significantly reduce its related-party exposures, negative pressure may be alleviated and the outlook revised to stable."
SCF chief executive Lachie McLeod said a further update on the group's already announced intention to introduce new capital is likely within the next four weeks.
S&P made similar comments about Marac's plans to shift its property development book to its listed parent, Pyne Gould (PGC), and recapitalise the finance company.
Pyne Gould chairman, Sam Maling said the downgrade was "both unexpected and disappointing."
Marac and SCF pointed out each company was covered unde the government's deposit guarantee scheme, and both said they plan to get back to investment grade level again.

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