QBE looks better to S&P

S&P narrowed the two notch rating differential between the holding company, QBE Insurance Group Ltd., and its core operating subsidiaries to one, by raising its counterparty rating to 'A' from 'A-' and affirming the 'A+' insurer financial strength and counterparty ratings on the subsidiaries. The outlook on all ratings is stable.

The upgrade reflects S&P's view that QBE's solid track record of operating cash flows sourced from well-diversified business and geographic streams should support QBE Group's ability to service holding company obligations. The stable outlook reflects expectations that QBE Group's diverse business platform should continue to provide strong earnings stability, with capacity to endure some cyclicality in underwriting performance.

GPT Group's strengthened financial position, following its recent A$1.7 billion equity raising, and the resulting considerable improvement in headroom within its financial covenants, allowed Moody's to upgrade the long- and short-term credit ratings it assigns to the group to 'Baa2/P-2' from 'Baa3/P-3'. A stable outlook was assigned to the ratings and this concludes the review for possible upgrade initiated in early May.

Similarly, S&P upgraded Rio Tinto on the completion of its US$15. 2 billion rights issue. The long- and short-term credit ratings assigned to the group were raised to 'BBB+/A-2' from 'BBB/A-3' with a stable outlook assigned. This resolved the CreditWatch with positive implications initiated in early June.

S&P stated that Rio Tinto intends to apply the net proceeds from the rights issue to repay drawings under its Alcan bank loans of about US$7 billion, due in October 2009, and about US$8 billion, due in October 2010. The loans constitute the main components of the group's debt maturities in 2009 and 2010. This action will significantly lower Rio Tinto's refinancing risks for the next two years.

S&P said it is too early to factor into the ratings Rio Tinto's non-binding joint venture agreement with BHP Billiton.

Moody's last week affirmed the 'Aaa' and 'Aa3' ratings that it assigns to public sector pfandbriefe and mortgage pfandbriefe issued by the Hypo Real Estate Group following the merger of Depfa Deutsche Pfandbriefbank AG into the group, at the end of June.

S&P affirmed its 'AAA' ratings on both the public sector and mortgage pfandbriefe but left the ratings on CreditWatch with negative implications. The CreditWatch reflects uncertainty regarding the changes to the current business model and the implications for the management of the covered bonds and uncertainty over HRE Group's long-term ability to support the covered bonds through additional overcollateralization.

Fitch affirmed the 'AAA/Stable/F1+' ratings assigned to African Development Bank (AfDB), noting that the impact of the ongoing global economic crisis on AfDB has been limited so far. As the bank holds only small amounts of asset and mortgage backed securities in its liquid assets portfolio and had no exposure to distressed financial institutions, it has recorded limited credit losses on treasury operations.

AfDB has one A$300 million, February 2011, bond outstanding in the domestic market and NZ$400 million, of February 2013 bonds outstanding in New Zealand.

But it could be too late for some

CIT Group (Australia) Ltd., has A$300 million of March 2011 bonds outstanding. Fitch lowered the issuer default ratings on its parent, CIT Group Inc., and its subsidiaries, by two notches to 'BB-' and lowered the individual rating to 'E' from 'D', signalling that CIT either requires or is likely to require external support.

CIT recently converted to a bank holding company but remains heavily reliant on wholesale funding amidst challenging market conditions. CIT's application for funding under the FDIC's Temporary Liquidity Guarantee Program remains active, but has not yet received approval.

Fitch is maintaining CIT on Watch Negative pending resolution of CIT's TLGP application. If CIT's application is not approved over the very short term, Fitch is likely to lower CIT's ratings to levels that would indicate that default is a real possibility. (Note: nab analysts reported late last week that the TLGP application had been declined.)

In anticipation of further declines in Australian property values in the forthcoming reporting season and through the remainder of the year, Fitch lowered its ratings on the Class A1, A2, A3 notes issued by Centro Shopping Centres Securities Limited: CMBS Series 2006-1, to 'AA+' from 'AAA' and lowered the Class C rating to 'A-' from 'A'. Ratings on the Class B, D and E tranches were affirmed and all rating outlooks revised to negative.

Fitch said that LVRs are now becoming the drivers of ratings, rather than debt service coverage ratios. Fitch went on to note that approximately 41 per cent of the obligor loans are due for refinancing in December 2009, another 25 per cent in December 2010, and 34 per cent in December 2011. Given the extremely tight liquidity conditions in financial markets, and in particular the Australian property market, Fitch anticipates the underlying obligors will have considerable difficulties in completing the refinancing.

Elderslie Finance was placed in receivership by the trustee of the company's debenture holders around the middle of last year. At this time, a deficiency of funds was found in the collection account that services the notes issued by Elderslie MTN Trust 2006-1.

Last week S&P downgraded the rating on the Class C notes to 'CCC-' from 'CCC', stating the notes are now vulnerable to non-payment of principal on or prior to final maturity. Cumulative losses to date on the underlying receivables pool and the deficiency of funds in the collection account are expected to wipe out the Class D notes and adversely impact the Class C notes.

Ratings on the Class A and B notes were affirmed on the expectation that the liquidity reserve and credit support provided by the Class C notes will be sufficient to offset any further income short falls.