Ratings downgraded for Heritage and ING

A significant increase in debt funded inventory levels at a time of stretched credit markets and an over reliance on short term bank lines to fund its business, prompted Standard & Poor's to revise the outlook on NuFarm Ltd's 'BBB-'  credit rating to negative.

However, S&P took the unusual action of placing GPT's short-term credit rating of 'A-3' on Credit Watch with positive implications while affirming its 'BBB' long-term credit rating with a negative outlook. This was in response to GPT's announcement that it hopes to raise at least $1.3 billion in ordinary equity plus $250 million in hybrid capital and that it had successfully renegotiated the group's look-through gearing covenant to 55 per cent, from 50 per cent, on its European syndicated debt facility.

S&P said that the announcements had significantly alleviated concerns that GPT could breach its banking covenants.

Moody's Investors Service was similarly impressed, stating that while it would continue its review of the Baa2 long-term rating assigned to GPT, it expected the rating would be confirmed with a stable outlook, if the capital raising is successful. In the meantime the 'P-3' short-term rating assigned to GPT was placed on review for possible upgrade.

Following its rating action on MGIC Australia Pty Ltd., and Genworth Financial Mortgage Insurance Pty Ltd., Fitch Ratings downgraded eight tranches of Australian RMBS but so far has provided details only on the two tranches impacted by the MGIC Australia downgrade. The affected tranches are the Nautilus Trust No.1 Series 2007-1, Class AB downgraded to 'AA+' from 'AAA' and Class B downgraded to 'A-' from 'A+'. The tranches were removed from Rating Watch Negative and assigned a negative outlook.

The disruption in the RMBS market, which used to provide around half of Heritage Building Society's funding, has led Moody's to downgrade the building society's deposit and debt rating to  'A3' from 'A2'. The bank financial strength rating was also lowered to 'C' from 'C+' and its short term rating to 'P-2' from 'P-1'.

Moody's concluded its review of the long-term senior rating allocated to American Express Company (Amex) and lowered the rating to 'A2' from 'A1' with a negative outlook. The short term 'P-1' rating was affirmed. The review was initiated on August 7 on concerns over asset quality trends and lending exposures, particularly within certain geographic markets in the US, where sharp home price declines have been experienced.

When announcing the downgrade Moody's noted that Amex has maintained its 'spend-centric' strategic model which emphasises non-interest income from fees relating to customer spending. With Amex's business heavily weighted towards the US, revenue and earnings will be adversely impacted as economic conditions dampen spending. Economic conditions have also adversely impacted asset quality.

The decline in consumer spending and asset quality was picked up by Standard & Poor's from Amex's Q3 earnings report, prompting the placement of the 'A+/A-1' ratings, assigned to Amex, on CreditWatch with negative implications. Both rating agencies noted the dependence of Amex on wholesale funding markets. S&P stated a downgrade of no more than one notch could result from its review.

Moody's also lowered the long-term senior debt ratings assigned to holding company, ING Groep NV to 'Aa3' from 'Aa2', noting that the profitability of the bancassurance group has deteriorated since 2007 and will continue to be pressured by the global economic slowdown and current financial market conditions. Moody's went on to observe that its action follows the announcement of a preliminary third quarter loss of €500 million and a €10 billion capital injection by the Dutch state. The latter facilitates a stable outlook on the ratings of the group.

ING Bank (Australia) Ltd consequently had its long-term senior debt rating lowered to 'Aa2' from 'Aa1'. The bank has been a prolific issuer in the domestic corporate bond market and has some $6.5 billion of bonds outstanding.