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Ratings downgrade for Oxford Finance

Standard & Poor's had lowered its long term counterparty credit rating on Electra Group subsidiary Oxford Finance Corp (OFC) from "BBB-" to "BB."

Friday, December 24th 2010, 10:41AM

The rating agency also lowered the short term rating on Oxford from "A-3" to "B."

"The downgrade reflects our opinion of the weakening credit profile of the wider Electra Group," said Standard & Poor's credit analyst Peter Sikora.

"In our view, OFC's credit profile has come under pressure from an increase in asset-quality problems. In addition, Electra Group's growth strategy to diversify into a range of higher-risk activities outside of its core strength in electricity distribution is aggressive and had moderated our credit view of the group."

Sikora said Standard & Poor's believed Electra Group's electricity network business is investment grade on a standalone basis, but the overall credit profile of Electra Group "is significantly weighed down by the weaker wholly-owned subsidiaries, which include OFC."

He said OFC's standalone credit profile would be slightly lower than that of Electra Group, reflecting the company's relatively high-risk loan portfolio, small capital base, confidence-sensitive funding profile, short-dated maturity profile of debenture stock and its modest risk-management framework.

However, Sikora did say those weaknesses were partly offset by OFC's strong interest margins and prudent approach to balance sheet growth.

"OFC's standalone credit profile is unlikely to improve in the short-to-medium term, although we expect its credit profile to stabilise following resolution of some property-related lending exposures," Sikora said.

"Upward movement in the counterparty credit rating is also unlikely unless there were a significant tempering of the overall group's risk appetite and acquisitive growth strategy outside of its core electricity network business, coupled with a material improvement in the financial risk profile and liquidity position of the entire Electra Group."

 

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