Acquisitions and divestments spark action
CSR's decision to break itself up led to both S&P and Fitch Ratings placing the 'BBB+' and 'BBB' counterparty credit ratings assigned to CSR respectively, on review for possible downgrade. S&P said, "the possible demerger of the sugar and renewable energy businesses will reduce CSR's cash flow diversification and weaken its business risk profile", and went on to warn that "should the demerger proceed, and depending on the aggressiveness of CSR's new capital structure, the long-term rating on CSR could be lowered multiple notches".
S&P will update the CreditWatch on a regular basis as material detail and clarification of CSR's proposed capital structure are confirmed. Nevertheless, the rating could be lowered in the short term if CSR is unable to demonstrate traction toward achieving improvements in key credit metrics in its half-year results ending Sept. 30, 2009.
Fitch observed that CSR's businesses are cyclical and the company's operational diversity has helped it deliver reasonably stable earnings over time. The demerger will increase the likelihood of greater volatility within each new entity, thereby weakening the overall credit profile of each new company.
Holcim Ltd's planned acquisition of the Australian assets of Cemex S.A.B. de C.V. also prompted a response from Fitch and S&P. With funding for the acquisition coming from the proceeds of a CHF2 billion, fully underwritten rights issue to be completed by the end of July, Fitch said there would be no impact on the 'BBB/Negative/F2' ratings that its assigns to Holcim. S&P similarly said there would be no impact on the 'BBB/Stable/A-2' ratings that it assigns.
Holcim still has A$260 million of bonds on issue in the domestic market, through its Queensland based subsidiary, Holcim Australia Finance Pty Ltd. While the bonds will mature in early August, a rollover of the bonds is likely, based on past performance.
Moody's is continuing its review for possible downgrade of the 'Aa2' rating assigned to Assured Guaranty Corp. Moody's is particularly concerned about Assured's US$15 billion insurance exposure to recently issued RMBS. With qualified statutory capital of only US$2.1 billion, Assured's capitalisation is extremely sensitive to the ultimate performance of the RMBS, which remains uncertain.
Assured announced last week its intention to raise US$550 million through a combined equity and hybrid security issue to finance its acquisition of another monoline insurer, Financial Security Assurance.
With the announcement of the planned sale of Barclays Global Investors (BGI) to Blackrock, S&P affirmed its 'AA-/Negative/A-1+' ratings on Barclays Bank Plc. S&P considers the sale of BGI a marginal positive for the bank, noting that the ₤8.2 billion consideration includes ₤4.2 billion of common and preferred shares in Blackrock.
The latter will not add to the capitalisation of the bank, as the asset is not regarded as being available to support banking risks, given Barclays' intention to hold the shares for the longer term. S&P also said that the effect on Barclays' business profile is marginally negative. Diversification is slightly reduced by the withdrawal from asset management activities, although some economic exposure is retained through the Blackrock shareholding.