UDC has had its credit rating increased from BBB to 'BBB+ and its outlook is recorded as stable.
S&P says the upgrade reflects UDC's improved risk-adjusted capital ratio, which makes it more likely that the finance company will maintain very strong capital levels over the next 12 months at least.
The agency says its ratings reflect UDC's current ownership structure, and business and financial profiles. "Nevertheless, we note that ANZ has been considering options to divest its ownership of UDC. A change in ownership is likely to weaken our rating on UDC in several ways, including a weakening in the finance company's business and financial profiles--for example if the funding facility from ANZ Bank New Zealand is discontinued as a result, or if the new shareholder plans to reduce the capital level. "
"An ownership change would also result in the removal of the rating uplift that we have incorporated because of potential for parent support beyond that extended on a business as usual basis."
"We expect UDC to remain the largest finance company in New Zealand, and a market leader in the country's asset-based lending market. We also believe that the diversity of the company's lending activities--by business line and geography--will help it maintain stable earnings."
"We believe that the ANZ NZ will continue to provide funding support to UDC in the form of a committed credit facility. We expect this facility to become the sole source of UDC's funding by the end of 2019 as it winds down its debenture program. UDC's debenture program wind-down has reached the point that we believe the finance company's funding profile is no longer vulnerable to significant stress if it is unable to refinance its remaining debentures. We believe UDC's overall funding risks remain largely unchanged, and which are now adequately reflected in our assessment of the finance company's funding and liquidity profile.
"We see limited upside to our rating on UDC within the next two years."
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