No more interest for Downer bondholders

Downer EDI's senior bondholders won't be getting higher interest because international ratings agency Fitch has affirmed its “BBB-” investment grading rating and changed its outlook to stable.

Friday, March 4th 2011, 8:33AM

by Jenny Ruth

Fitch had placed the rating on negative watch in late January because of concerns about successive write-downs and delays to its Waratah train project in New South Wales.

Fitch says there's little evidence the Waratah problems have negatively impacted on Downer's new contract wins and its order book remains strong with a pipeline of about A$20 billion (NZ$27.4 billion).

Downer's A$279 million capital raising should also alleviate concerns about Downer's financial strength, Fitch says.

And there is little evidence finance providers are backing away from Downer as a result of the Waratah problems, it says.

If Fitch, the only agency to rate Downer, had downgraded its rating, Downer would have had to pay 1.25 percentage points more in interest on its $150 million of Works Finance senior bonds than the 9.65% coupon rate.

The bonds, which mature in September 2012, last traded yesterday at $102.279 per $100 face value, or an annual yield of 7.9%, down from as high as 9.6% after Fitch put Downer on negative watch.

Downer's other Works Finance securities, $200 million of subordinated perpetual preference shares due to be reset in June 2012, which have a 9.8% coupon, jumped to $91.745 per $100 face value, a 17% annual yield, from just below $91,or a 19.9% annual yield. They had been 24.5% after the negative watch was announced.

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