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Standard & Poor’s lowers Broadlands Finance credit rating

Broadlands Finance has had its long-term counterparty credit rating reduced from ‘B’ to ‘BB-/B’ by Standard & Poor’s and its outlook held on negative, with ratings analyst Peter Sikora  citing Broadlands “weak liquidity position, vulnerable funding profile and high-risk loan portfolio.”

Thursday, December 9th 2010, 6:30PM

Broadlands Finance has had its long-term counterparty credit rating reduced from 'B' to 'BB-/B&' by Standard & Poor's and its outlook held on negative, with ratings analyst Peter Sikora citing Broadlands "weak liquidity position, vulnerable funding profile and high-risk loan portfolio."

"In our view, Broadland's credit losses have been fairly well managed to date, but its credit profile is moderated by a high-risk loan-receivables portfolio that exhibits a material level of arrears and some single-customer concentration," Sikora said.

Over the past year Broadlands has required regular and ongoing support in the form of cash debenture investment from sole shareholder Anthony Radisich to repay external customer debenture investments heading into and post the initial retail government guarantee expiry on October 12.

While S&P said Radisich is believed to be able to provide further support, "we believe that this support is vulnerable to Broadlands being able to generate sufficient returns and value to ensure shareholder's longer term commitment."

Broadllands has moved to support its management of credit losses by heavily reducing the number of motor vehicle dealerships from which it originates loans and has progressively reduced the size of its balance sheet from nearly $40 million in 2008 to approximately $34 million at September 20, 2010.

"Favourable features of Broadlands credit profile include its good, albeit decreasing interest margins and its adequate capital-adequacy ratio. These factors provide some capacity for the company to absorb higher credit losses," S&P said.

S&P said the revised rating reflected uncertainty around Broadland's ongoing ability to manage its liquidity and funding position, though a revision to stable "would be supported if Broadlands could re-establish the ability to fund more of its lending via external debenture deposits, or via other sources that reduce reliance on its shareholder."

Broadland's reliance on Radisich was also highlighted by S&P as a factor that could prompt a lower rating "if Broadlands' shareholder's willingness or capacity to support the company were to materially weaken.

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