Standard and Poor's has assigned a BB long term credit rating to recently restructured rural finance company PGG Wrightson Finance, which will be enough for it to be part of the government's extended deposit guarantee scheme. The deposit guarantee extension from October this year until the end of 2011 is only available to those non-bank deposit takers with a BB rating or better. Finance companies must have a credit rating by March 1 under the Reserve Bank's new regulatory regime. PGG Wrightson said it would look to increase its rating over time and was pleased with a 78% average reinvestment rate from depositers, which had increased to a high of 90% through January. PGG Wrightson offers both guaranteed and non-guaranteed deposits.
Here is the full statement below from Standard and Poor's:
Standard & Poor's Ratings Services said today that it had assigned its 'BB/B' counterparty credit ratings to PGG Wrightson Finance Ltd. (PWF). The outlook is stable. PWF is a moderate-sized New Zealand-based finance company specializing in rural finance. The company is a wholly owned subsidiary of PGG Wrightson (not rated), a rural services company based in New Zealand. "The ratings on PWF reflect our opinion of the company's exposure to the agriculture sector, which is riskier than some other sectors, and its high"”albeit reducing"”counterparty concentration risk," Standard & Poor's credit analyst Gavin Gunning said. "Nonetheless, these weaknesses are offset by the company's good brand in New Zealand's rural finance services market, stemming from the company's national footprint and access to its parent's broad distribution platform and large rural client base. PWF's reasonably diversified funding sources also support the ratings." Mr. Gunning added: "The stable outlook reflects PWF's reasonably diversified funding sources, our expectation that the company's improving capital position should give PWF some headroom to weather further industry challenges, and PWF's strategic importance to PGG Wrightson. In addition, we believe that PGG Wrightson's recent recapitalization and refocused strategy should enhance its capability to support PWF if needed." Downward rating movement could be precipitated by: · Evidence of lesser support by PGG Wrightson to PWF, or if PWF were no longer a core or wholly owned subsidiary of PGG Wrightson; · Deterioration of PGG Wrightson's credit standing, given PWF's reliance on its parent's brand strength, depending on the circumstance that causes the weakening credit profile of its parent; · A weakening of PWF's standalone financial strength, stemming from funding or liquidity stresses because of lack of banker confidence, debenture refinancing problems, or other factors; or · Significant deterioration in PWF's asset quality. Upward rating movement in the near term is unlikely, although such a scenario may be considered in the medium-to-long term if the credit profile of PWF's parent improves, combined with no diminution of PWF's own credit profile or its core role within the group. If PWF's standalone credit quality improves significantly and PGG Wrightson's credit profile is not diminished, an upgrade might be considered; however, this is by no means certain, with any rating upgrade likely limited to one notch.
PGG Wrightson issued a statement saying the following:
Mark Darrow, head of PGG Wrightson Finance, commented: "This is our first time through a credit rating process and BB was our initial target. The fact that we have met the target is very good news "“ it validates the business model, provides additional assurance to our depositors and lending clients, and highlights the value of steps taken over recent years to enhance the company's capital base and performance. We will use this as a starting point from which to take our rating to a higher level over time. "From a technical and regulatory perspective, this solid rating means that we can now apply for the Crown's Extended Guarantee Scheme, which is an important requirement for some investors. If our application is approved, this would extend our ability to offer guaranteed securities through to the scheme's conclusion in December 2011." PGG Wrightson Finance chose Standard & Poors to conduct the rating process because of the high profile and recognition it commands, both internationally and in the New Zealand market. "The credit rating process has been a two-year exercise. It has been a great way to review every aspect of our business, with the results then going through external and independent review," Darrow said. He added that investor confidence in PGG Wrightson Finance was at an all time high. "Deposits have shown good growth since November despite the very competitive deposit market. The reinvestment rate has improved on what was already a strong position, hitting an all time record of just under 90 percent for January 2010. The long run average is around 78 percent, which would be the envy of nearly all finance companies in the market." PGG Wrightson Finance is covered under the current Retail Deposit Guarantee scheme, but also recently became the first finance company to offer excluded securities in New Zealand (on 4th January 2010). Put simply, excluded securities relate to deposits not covered by the Crown Guarantee, but with a slightly higher interest rate. "Most of our investors invest on the basis of comfort with our business, not just because we temporarily offer a government guarantee," Darrow said. "It is important that we offer our clients the choice while we can, and the offer of excluded securities has accomplished that. We are already receiving more than $1m per week on an excluded basis. "It will also be important for the market to transition away from the guarantee scheme well ahead of the December 2011 deadline. The provision of investment options not tied to the scheme is an essential element in the transition."