Ratings wobbles for CIT, Northern Rock and RBS
S&P has taken the view that the funding profile of CIT Group has not benefited from converting into a bank holding company to the degree expected and thus lowered the counterparty credit ratings assigned to the group to 'BB-/B' from 'BBB-/A-3', and left the ratings on CreditWatch with negative implications.
The Federal Deposit Insurance Corp did not grant CIT access to the FDIC's Temporary Liquidity Guarantee Program and liquidity available to meet the financier's lending commitments and to repay maturing debt has continued to erode.
CIT Group (Australia) Ltd, which operates a non-bank lending operation in Australia, has A$300 million of March 2011 bonds on issue in the domestic market.
Northern Rock, the nationalised British bank, still has some A$800 million of March 2011 bonds on issue in the domestic market. Fitch revised its Rating Watch on Northern Rock's long-term issuer default rating of 'A-' to Evolving from Positive, last week. The change reflects the proposed division of the bank into a legacy holding company with the majority of existing mortgage assets, and a smaller bank holding retail deposits and writing new mortgages. The legacy holding company would be wound down over time.
Moody's concluded its review of the 'C-' Bank Financial Strength Ratings (BFSR) assigned to Royal Bank of Scotland and left the rating unchanged but with a negative outlook. The purpose of the review was to assess the impact of the UK Government Asset Protection Scheme (APS).
Moody's considers the APS (which is expected to be finalised in the next couple of months and will cover around ₤325 billion of assets) and the accompanying government capital should provide a significant underpinning to the financial strength of RBS. The negative outlook reflects the need to clarify which assets will be covered by the APS, the bank's sensitivity to Moody's stressed loss estimate and the challenges the bank will need to manage for the next several years.
The 'Aa3' and 'A1' senior unsecured ratings assigned to RBS and Royal Bank of Scotland Group respectively, were affirmed.
Moody's raised its senior unsecured rating on GMAC LLC and GMAC Australia to 'Ca' from 'C' and left the ratings on review for further possible upgrade. Moody's said the upgrade of GMAC's rating reflects the firm's lower bankruptcy risk resulting from the US government's support of the firm.
Of continuing concern though, GMAC must yet raise substantial additional equity to comply with the requirements of the recently concluded stress tests.
During its review of GMAC's ratings, Moody's will seek clarity regarding GMAC's capital raising plans. Should the firm successfully fill the capital requirement while preserving the status and protections of senior creditors, its long-term ratings could be upgraded to the 'Caa' category.
S&P affirmed the ratings on all classes of CMBS issued by Macquarie Office Finance Pty Ltd., Series 1, following the sale of a property in the underlying property portfolio. The property was initially valued at A$73 million and sale proceeds of A$92.28 million will be retained in the core sale proceeds account. The scheduled maturity for the CMBS is September 2009, with a final maturity of March 2011.
In response to the strong performance of the non-conforming mortgages underlying the Pepper Residential Securities Trust No. 5 and Pepper Residential Securities Trust No. 6 and resulting increase in credit support for each tranche, S&P raised its ratings on all subordinated tranches. While arrears are increasing, they remain well below S&P's non-conforming SPIN index and to date all losses have been covered by excess spread with no charge-offs to unrated tranches.
S&P raised its ratings on the Class B and C tranches of each transaction to 'AA' and 'BBB+', from 'A+' and 'BBB', respectively. The 'AAA' ratings on all the senior tranches were affirmed.