Ratings agencies unsure on Suncorp, split on Genworth

S&P and Fitch affirmed their 'AA' long-term credit ratings and stable outlook assigned to the Commonwealth Bank after the bank announced its acquisition of BankWest. Being funded by a A$2 billion equity raising prevented any adverse impact on the bank's capitalisation and, with BankWest accounting for around 10 per cent of the CBA's asset base, it will bring added market share in the strategically important areas of deposits and home loans and in the state of Western Australia. The only negative is the challenging financial environment in which the acquisition and integration will have to be managed.

All three rating agencies also placed their A+/Aa3/A+ long-term credit ratings and other ratings assigned to Suncorp-Metway on review with the direction uncertain.

This was in response to Suncorp announcing early in the week that it had been approached by several parties interested in acquiring its banking and wealth management operations. These operations contribute around 40 per cent of the group's earnings.

The direction of credit ratings on the banking and wealth management operations, if acquired, will depend on their stand alone profile, the credit risk profile of their acquirer and the level of integration with the acquirer. The ratings assigned to the remaining insurance operations of Suncorp will be determined by the resulting corporate structure and business and financial profile.

Negotiations on a recapitalisation plan for the Lane Cove Tunnel have collapsed and are unlikely to recommence any time soon. This led Moody's and S&P to downgrade Lane Cove Tunnel Finance Company by two notches to Caa1/Negative, with S&P a notch lower at CC/Negative.

The company has A$0.9 billion of bonds outstanding that have been credit wrapped by MBIA, which means the credit ratings on the bonds remain unchanged at A2 on review for downgrade and AA/Negative, from Moody's and S&P respectively. The rating agencies hold a dim view on the company's ability to meet its debt service commitments.

Moody's observed that with traffic volumes remaining well below projected levels, the company is having to draw on cash reserves to meet debt payments. A third stand still agreement to June 2009 has been reached with MBIA and S&P expects that MBIA will start contributing to debt payments from December, to allow the company to keep six months of debt service payments in its debt service payment reserve account. S&P said it is likely that the company will be unable to continue to service debt on its own from some time in the second half of 2009.

Moody's has taken a different view to S&P, a week earlier, on Genworth Financial Inc's announcement that it is exploring strategic alternatives for its US mortgage insurance operations. Moody's has placed the Aa3 insurance financial strength rating assigned to Genworth Financial Mortgage Insurance Pty Ltd (Genworth Australia) on review for possible downgrade.

Moody's notes that Genworth Australia receives explicit financial support from its US affiliate in the form of an excess of loss reinsurance treaty. This reinsurance enables Genworth Australia to meet the risk based capital ratio required by APRA.