More rating action on Amex and Lion Nathan

Following on from Moody's Investors Service the week before last, S&P cut its counterparty credit ratings on American Express Co. and its subsidiaries by two notches to 'BBB+/A-2' from 'A/A-1'. The rating outlook is negative.

The rating action was based on S&P's view that funding and liquidity will remain concerns in the long term in the context of a business strategy that will remain largely wholesale funded. S&P believes that Amex's business profile displays a level of confidence sensitivity that is more consistent with the revised ratings.

The negative outlook reflects S&P's expectations for an increasingly challenging operating environment and the resultant deteriorating asset quality, increased provisioning, and pressured financial results.

Downer EDI Limited was one of the last true corporates to issue bonds in the Australian corporate bond market. That said, it issued just $70 million of December 2009 bonds in December 2006. Fitch affirmed the 'BBB-' issuer default and senior unsecured debt ratings it assigns to the group with a stable outlook.

Fitch said the affirmation reflects Downer's return to reliable earnings and a solid operating cash flow, following the completion of its loss-making legacy contracts during the 2008 financial year. It confirms that Downer has re-emerged with a refocused, disciplined and prudent business model which is showing strong resilience in the current economic downturn.

Continuing with two of our themes from last week, Lion Nathan's improving credit quality by virtue of being acquired and once prominent credit wrappers going out the back door, both S&P and Fitch have placed their ratings on Lion Nathan on a positive watch and S&P moved Syncora Guarantee (formerly XL Capital Assurance) to 'D'.
With Lion Nathan's Independent Board Committee agreeing the terms of Kirin Holdings takeover offer last Monday, S&P placed its 'BBB' long-term corporate credit rating on Lion Nathan on CreditWatch with positive implications. S&P will resolve the CreditWatch upon the completion of the transaction but did not indicate the likely extent of the rating uplift.

At the same time, Fitch placed the 'BBB+/F2' long- and short-term issuer default ratings it assigns to Lion Nathan on Rating Watch Positive but placed the 'A+' long-term issuer default rating assigned to Kirin Holdings on Rating Watch Negative. Fitch flagged the possibility of Lion Nathan's credit ratings being equalised with Kirin Holdings, which is likely to be lowered one notch to 'A'.

S&P moved its counterparty credit rating on Syncora Guarantee Inc. to 'D' for default and its insurance financial strength rating to 'R' for under regulatory supervision due to its financial condition. Syncora has been ordered by the New York Insurance Department to suspend any and all claims payments until it has restored its policyholders' surplus to at least US$65 million, the minimum required by the State.

Syncora had been negotiating with credit default swap counterparties to commute certain exposures and was supporting a tender offer for 56 classes of RMBS it insures. These two actions were key components of its plan to bring its policyholders' surplus into compliance but it had failed to complete either of these actions by April 26, 2009.