Rating outlook negative for IAG, BOS, Vodafone
The main operating subsidiaries of Insurance Australia Group had their 'AA-' Insurer Financial Strength Ratings affirmed by Fitch with a negative outlook continuing. Fitch observed that the negative outlook was placed on the ratings in July 2008 in response to declining operational performance and poor strategic execution.
With IAG's focus now more firmly placed on its core markets, recent operational and expense initiatives combined with solid rate increases should support future results. Fitch notes however, that improvement may be tempered, given the impact of declining investment returns and the weaker economic environment.
Fitch said it will review the ratings once full year numbers are reported for fiscal 2009, paying particular attention to the targeted insurance trading margin, evidence of improvements in the core Australian Intermediated and New Zealand businesses, as well as continued improving trends in both its operations and capital position.
Moody's concluded its review of the Bank Financial Strength Rating assigned to Bank of Scotland and left the rating at 'C-' with a negative outlook. The review was initiated in February when the rating was lowered to 'C-'. The bank is now expected to have nearly half of its customer loan book insured under the UK government's Asset Protection Scheme.
Moody's expects the BFSR will be aligned with the 'C' rating assigned to Lloyds TSB as the bank becomes fully integrated within the Lloyds Banking Group and as assets that are outside of the risk appetite of the group are run off. The 'A1' senior unsecured rating assigned to HBOS Plc was affirmed with a stable outlook.
The Australian branch of Bank of Scotland Plc still has some A$1.5 billion of bonds outstanding in the domestic market, while HBOS Plc has A$4.1 billion of senior bonds and A$600 million of subordinated bonds outstanding. HBOS also has NZ$325 million of March 2010 bonds outstanding in New Zealand.
Moody's became the next to lower its credit ratings on the Goodman Group. The senior unsecured rating was lowered to 'Baa3' from 'Baa2' and the subordinated rating on Goodman's hybrid securities was lowered to 'Ba1' from 'Baa3'. All ratings remain on review for further possible downgrade.
The ratings were lowered on continuing weakness in the outlook for industrial properties in Australia and Europe, Goodman's high look-through gearing, which will likely deteriorate further, and the likely extended period before profitability and cash flows from its funds management business are restored. Failure to successfully implement initiatives to reduce gearing and enhance liquidity is likely to result in further rating downgrades.
Vodafone Group Plc had the outlook on the 'A-/A-2' counterparty credit ratings assigned by S&P revised to negative from stable. S&P expects that weaker macroeconomic conditions will dampen revenues and profitability, resulting in weaker growth in future free cash flows and weaker credit metrics. The rising proportion of emerging market operations also increases exposure to country risk.
S&P said Vodafone's ratings could be lowered on acquisition activity, operating underperformance, enhanced shareholder returns or persistent adverse foreign exchange movements. Vodafone has a A$265 million, January 2013, bond outstanding in the domestic market.
As flagged last week, S&P raised its ratings on the Class 2005-1T and 2006-1T notes issued by Max Trust to 'A-' from 'BBB-', and removed the ratings from CreditWatch. S&P said the successful restructure of the underlying transactions improves the credit quality of the notes.