Credit outlook no longer favourable even for miners

Standard & Poor's lowered the long-term credit rating assigned to Boral Ltd to 'BBB' from 'BBB+' at the end of last week, based on expectations of deteriorating financial performance over the current fiscal year. Boral's credit quality is heavily dependent on its US operations returning to profitability, said S&P, and this is compounded by the majority of the company's debt being denominated in US dollars. The depreciation of the Australian dollar has had an adverse impact on the company's gearing. The rating outlook is stable.

Following on from S&P the week before last, Moody's Investor Service has revised the outlook on the ratings assigned to the Rio Tinto group to developing from positive. The 'A3/P-2' ratings assigned to the rated entities in the group were affirmed.

Moody's similarly cited weaker commodity prices, deteriorating market conditions and slower than expected assets sales as the reasons for the outlook change, tempered by the potential for the takeover bid from BHP Billiton to succeed, which could have a favourable impact on the credit ratings assigned to Rio Tinto.  

Moody's and S&P both lowered the long-term credit ratings that they assign to Bayerische Motoren Werke Aktiengesellschaft (or BMW AG) to 'A2' from 'A1', with the outlook remaining negative in the case of Moody's, and to 'A' from 'A+' with a stable outlook, in the case of S&P. BMW's third-quarter profit results were below expectations and showed that it been unable to meet even the sharply revised profit targets that had been previously set. Moreover, October sales volumes have declined significantly and BMW has dropped its four per cent return on sales target, saying that it is no longer feasible.

Moody's negative outlook reflects the challenges that confront the company in deteriorating global automotive markets. S&P's stable outlook reflects expectations that BMW will take all necessary steps to cope with the current recessionary environment.

BMW Australia Finance Ltd., has been similarly downgraded. The company currently has no bond issues outstanding in the domestic market but it has approximately $1.1 billion outstanding in the Euromarket. S&P rates the bonds issued a notch lower than the parent.

Moody's completed its reviews of Ambac Financial Group and MBIA group last week and in the case of the monoline insurance subsidiaries, Ambac Assurance Corporation and MBIA Insurance Corporation, Moody's lowered its insurance financial strength ratings to 'Baa1' on both. This was a bruising four notch decline for Ambac Assurance Corporation.

The outcome of the reviews, initiated in mid-September, reflects Moody's assessment of the diminished business and financial profiles of the insurers, resulting from their exposure to losses from US mortgage risks and disruption in the financial guarantee business. The outlook on the ratings is developing given the potential for further deterioration in their insured portfolios as well as for positive developments that could occur over the near to medium term.  

S&P continues to assign 'AA' long-term credit ratings to both Ambac Assurance Corporation and MBIA Insurance Corporation with a negative outlook on each, while Fitch Ratings withdrew its ratings on both groups on June 26.

SLM Corp, otherwise known as Sallie Mae, has also been the subject of a ratings review by Moody's that was concluded last week. Moody's affirmed the 'Baa2/P-2' ratings it assigns but changed the outlook to negative. SLM has some $1.6 billion of bonds outstanding in the domestic market with maturities ranging from May 2009 through to May 2012.

Coming out from an aborted LBO and being impacted by revised student loan legislation, SLM must now effectively manage the operating and funding risks associated with its transition to a more established business profile.

Fitch announced the downgrade of another tranche of RMBS, following its recent rating action on Genworth Financial Mortgage Insurance Pty Ltd., and affirmed the ratings on a further seven tranches. The Class B tranche of notes issued by Maxis Loans Securitisation Fund 2008-1 were downgraded to 'AA-' from 'AA' and removed from Rating Watch Negative. The notes were issued at the end of June when the RMBS market was staging a short-lived recovery.