Ratings round-up

Philip Bayley
Rio Tinto's announcement of its intention to reduce debt by US$10 billion by the end of 2009, driven by job cuts, reductions in operating and capital expenditures and further asset sales, drew a response from Fitch Ratings and Moody's Investors Service. Fitch affirmed the current ratings assigned to Rio and observed that the debt reduction measures are an appropriate reaction to Rio's current position.

Moreover, the achievement of the planned debt reduction programme would point towards a stabilisation of Rio's rating at the 'BBB+' level, said Fitch. Moody's is continuing its review for possible downgrade and said that these actions will be considered. It expects to conclude the review shortly.

When BHP Billiton (BHPB) dropped its takeover bid for the company two weeks earlier, Fitch downgraded Rio, lowering its issuer default and senior unsecured credit ratings to 'BBB+' from 'A-', Moody's placed the 'A3' long-term credit rating that it assigns to the group on review for possible downgrade and Standard & Poor's amended the CreditWatch on its 'BBB+/A-2' ratings, to negative from developing, and warned of a possible two notch downgrade.

Also at that time, S&P noted that there was no impact on the 'A+/Negative/A-1' ratings it assigns to BHPB and said the negative outlook would remain until the strategic direction of the group had been assessed. Last week, S&P affirmed the 'A+/A-1' ratings and moved the outlook to stable from negative, stating its belief that BHPB will manage its prudential framework consistent with the 'A+' rating.

S&P and Moody's acted again on the failing Lane Cove Tunnel. S&P moved its underlying rating (SPUR) to 'D' (default) in response to drawings being made under the credit wrapper, MBIA's, guarantee to meet scheduled repayments. However, the bonds issued by Lane Cove Tunnel Finance continue to be rated 'AA/Negative' reflecting the credit ratings of MBIA.

S&P considers drawing under the guarantee to be a failure to pay. Moody's does not, but expressed "…increased concerns that the company is likely to be in default in the short term due to the continued significant shortfall in traffic numbers relative to what is needed to service debt", and lowered the underlying rating it assigns to Lane Cove Tunnel Finance to 'Ca' from 'Caa1' and left the outlook negative.

And the troubled miner, Oz Minerals, has had its credit rating from Fitch lowered to 'CC' from 'BBB-', left on Rating Watch Negative and then withdrawn. Fitch said the substantial downgrade reflects the rapid and recent deterioration in credit quality and an escalating liquidity problem that leaves the company extremely vulnerable to critical and imminent refinancing risks. Fitch also noted Société Générale's allegation - denied by the company - that it is already in default on a A$250 million facility, due for repayment by year end.

Fitch had placed the rating on Rating Watch Negative some two weeks earlier but has now withdrawn the rating on the basis that it does not consider publicly available information will be sufficient to allow accurate assessment of OZ Minerals' risk profile going forward.  

S&P amended the outlook on the ratings assigned to ING Groep NV (AA-/A-1+) and ING Bank NV, including ING Bank (Australia) Ltd., (AA/A-1+), to negative from stable. The outlook change was attributed to "…the increasing headwinds to operating performance, and our view that performance in both the banking and insurance operations may be materially affected by the tougher operating environment".

Following on from S&P's downgrading of the Class A tranche of RMBS issued by TORRENS Series 2008-1 Trust to 'AA' from 'AAA', due to a recent change in criteria, Moody's has initiated coverage and assigned 'Aaa' ratings to the A$2.1 billion of Class A notes. The A$186 million of Class B notes were not rated. TORRENS Series 2008-1 Trust is a repo-eligible internal securitisation undertaken by Bendigo and Adelaide Bank in May.

Following on from the 'A' insurer financial strength rating assigned to MGIC Australia Pty Ltd., being placed on CreditWatch with negative implications the week before last, S&P similarly acted on three tranches of RMBS. The affected tranches are: Nautilus Trust No.1 Series 2007-1 Class AB, 'AA+/Watch Neg' and Class B, 'A/Watch Neg' and Nautilus Trust No.1 Series 2008-1 Class B, 'AA-/Watch Neg'.

Finally, the strong performance of the assets in the pools underlying the Series 2005-1 and 2006-1 REDS EHP Trusts and consequent increases in the proportion of subordination at each rating level, allowed S&P to raise its ratings by one full rating category on all of the subordinated classes of notes.