PrefBlog

Moody’s will be making adjustments to some debt ratings:

A landmark Ontario court ruling bolstering the rights of pension plan members in bankruptcy cases could have an impact on credit ratings for companies with underfunded pension plans, according to a new report by debt rating agency Moody’s Investors Services Inc.

Moody’s said a review of 84 Canadian industrial companies it rates found two companies — Air Canada (AC.B-T2.250.073.21%) and Essar Steel Algoma Inc. — whose debt might be vulnerable to downgrade if the Ontario court decision is upheld by the Supreme Court of Canada. The report said the impact would likely be limited and would affect ratings of specific debt instruments rather than a company’s overall credit rating.
…
“The ruling does not change how we measure debt and other liabilities, but it does change the priority of claim and the relative ranking of liabilities, which is relevant when assessing individual debt-instrument ratings,” said Bill Wolfe, Moody’s vice-president and senior credit officer.

“On this basis, we expect that only instrument-level ratings will be affected by the ruling.”
…
Moody’s said it will not change any ratings until there is a decision from the Supreme Court and it is clear there is a final ruling in the case.

Presumably it is Loss Given Default that will be affected more than Probability of Default. The effect of the ruling appears to be similar to the intent of Bill C-501.

Allied Irish has defaulted in the view of DBRS:

DBRS Inc. (DBRS) today has downgraded the ratings of certain subordinated debt issued by Allied Irish Banks p.l.c. (AIB or the Group) to “D” from “C”. Today’s downgrade follows the execution of the Group’s note purchase offer.

Almost all of these instruments have been extinguished. The default status for the purchased and now-extinguished notes reflect DBRS’s view that bondholders were offered limited options, which is considered a default under DBRS policy, as discussed in DBRS’s press release dated 19 May 2011.

For AIB’s GBP 500 million Dated Subordinated Debt due 2025 and its EUR 500 million Dated Subordinated Debt due 2017, which are still outstanding due to the lack of consent for a clean up call, DBRS has downgraded their ratings to ‘D’. The downgrade reflects DBRS’s expectations that the interest payments of these outstanding subordinated instruments will be halted on the next payment date, as allowed by the Irish High Court. Further, the downgrade considers the extension of the final maturity dates, which are now extended to 2035. Given that bondholders are unlikely to receive interest as agreed upon and that the expected maturity has been extended, DBRS views these actions as disadvantageous to bondholders, which is considered a default under DBRS policy.

However, the rating of AIB’s GBP 368.253 million Dated Subordinated Debt due 2019, which is still outstanding, is unchanged at ‘C’, Under Review with Negative Implications. This rating considers that these notes have not yet been amended by AIB pursuant to the Subordinated Liabilities Order from the Irish High Court as a challenge in respect to these notes is ongoing before this Court.

S&P put Encana on Outlook-Negative:

• •On June 21, 2011, Encana Corp. announced that it had ended its C$5.4 billion Cutbank Ridge joint venture negotiations with PetroChina International Investment Co.
• •As a result, Standard & Poor’s is revising its outlook on Encana to negative from stable, and affirming its ‘BBB+’ long-term corporate credit and senior unsecured debt ratings on the company.
• •We are also lowering our Canada scale commercial paper rating on Encana to ‘A-2’ from ‘A-1(Low)’.
• •The negative outlook reflects our view that Encana’s adjusted debt to EBITDAX will remain above 2x through 2012, given weak natural gas prices and the company’s high capital expenditure plans, which we expect to outspend operating cash flow generated.

It was a mixed down day for the Canadian preferred share market, with PerpetualDiscounts losing 15bp, FixedResets of 11bp and DeemedRetractibles up 1bp. Volatility was muted; volume was quite good. Scotia had a good day..

This entry was posted on Thursday, June 23rd, 2011 at 8:52 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.