Standard & Poor’s has revised its outlook on Business Finance to stable from negative and affirmed its BB long-term and B short-term ratings, reflecting the international credit rating agency's view of the "good and stable" operating performance of Business Finance's half owner and guarantor, Australia's Liberty Financial Pty Ltd.
S&P credit analyst Peter Sikora said the move also reflected a view that Liberty would remain successful in effectively managing its business position, asset quality, operational performance, and capital adequacy position as a niche-based financier at a level supportive of a BB rating.
"Critical to the stable outlook is our expectation that Liberty will maintain good access to, and support from, wholesale and bank lending markets, with the benefit of its good operating performance,” said Sikora.
Business Finance, a specialist lender to companies buying assets such as vehicles and machinery, issued a prospectus and restarted lending and finance activities earlier this year after a more than two year break. See full story.
Factors moderating S&P's assessment of Business Finance's stand-alone credit profile include a concentrated funding profile; uncertainty relating to its ability to re-establish its retail debenture funding base under its new joint-venture structure; and its modest absolute capital base, said Sikora.
On the other hand, factors supporting the company's stand-alone credit profile include S&P's favorable view of Business Finance's business strategy and its measured growth plans, which Sikora said should help it effectively manage and limit its risk profile as it expands its business and establishes a market position.
However, Sikora noted Business Finance's credit rating could come under pressure if the company became a "more material contingent liability" on Liberty, and S&P then moderated its view of Liberty's credit profile.
"Liberty’s credit profile could come under pressure if the performance of its financial assets deteriorated materially such that there was insufficient excess income to absorb losses in underlying assets, or if this led to Liberty bearing a material decrease in earnings or principal losses from these investments," said Sikora.
"The company's credit profile could also come under pressure if it were to embark on an aggressive asset-growth path that contributed to its key financial metrics deteriorating. In addition, the rating would be lowered if cover of the guarantee from Liberty weakened or was withdrawn."
He said S&P didn't expect to raise its Business Finance ratings in the short-term.
"An upgrade would require an improvement in our opinion of the credit profile of the wider Liberty group," Sikora added.
A BB rating is a speculative, or "junk", rating and is two notches below S&P's BBB- lowest investment grade rating. S&P says companies rated BB are less vulnerable in the near-term but face major ongoing uncertainties to adverse business, financial and economic conditions.