Equitable one of better companies: S&P

Thursday 11th September 2008

Standard & Poor's Ratings has reviewed Equitable�s ratings and left them unchanged at BB+, but has moved them from stable to negative.

This means there are some factors which could lead to a decrease in ratings.

�The negative outlook implies roughly a one-in-three chance of a rating downgrade,� the agency says. �In other words, the most likely scenario (the two-in-three chance) is that our ratings�will remain at the BB+ level.�

"Equitable's non-performing assets have increased to a higher level than our expectations at the BB+ rating," Standard and Poor�s credit analyst Mark Legge says. "While the rise in non-performing assets has not yet translated to materially increased lending losses, there is the possibility this could occur and, consequently, contribute to a ratings downgrade."

The agency says that Equitable has protection against higher lending losses from credit insurance provided by sister company Equitable General Insurance, which is currently able to absorb up to $10 million of lending losses. It says this is a level well in excess of those anticipated to materialise in the short term.

�Loss absorption by Equitable General Insurance adds to Equitable's existing capital, which exceeds $40 million and remains commensurate with the BB+ ratings.

�While we expect Equitable's earnings to soften in the short term, it is unlikely by itself to put pressure on the rating.�

S&P notes that Equitable's 2008 debenture renewal rates have been lower than 2007, �although short-term concerns regarding liquidity are ameliorated because of earlier proactive initiatives by Equitable management to increase and strengthen banking lines.�

"In an industry characterised by recent failures, we retain our view that Equitable is one of the more sound finance companies in New Zealand, even though the group's asset quality has recently deteriorated outside expectations," credit analyst Gavin Gunning says.

"Equitable differs from many other property-focused companies that have recently experienced a more severe deterioration in their credit quality or fallen by the wayside because of its focus on first mortgage, manageable loan-to-valuation ratio (LVR) lending (compared with second mortgage, high LVR lending), its early recognition of a need to strengthen liquidity, and its strongly supportive principal shareholder."

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