MARAC’s credit rating – what is it and what does it mean?

MARAC Finance Limited (MARAC) has a credit rating of BB+ (Outlook Negative).

The rating, which is a statement of the creditworthiness of MARAC, has been provided by Standard & Poor’s (S&P).  S&P are an internationally recognised rating agency approved by the Reserve Bank of New Zealand to provide credit ratings for non-bank deposit takers.

MARAC’s “BB+” rating is considered less vulnerable to non-payment than other speculative issues.  However, an institution rated “BB” faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet its financial commitments.  A credit rating of “BB+” is considered by the investment community as being one level below “investment grade”.

What is a credit rating?

A credit rating is a rating agency’s opinion of an institution’s ability to pay back in full and on time all the money they have promised an investor.  In MARAC’s case, this is the funds its investors have placed with it.

Credit ratings are based on detailed research and analysis by a ratings agency, which takes into account the financial history and current financial position of the institution.  Ratings are continuously reviewed, although most ratings are subject to annual review.

What is the scale used for credit ratings?

Generally a lower credit rating indicates a higher risk that an institution will ‘default’ and an investor will not get their money back in full and/or on time as promised. The S&P rating scale is shown below. MARAC’s BB+ rating sits in the “BB Less Vulnerable” part of the scale.

Source: adapted from Reserve Bank of New Zealand “Know your credit rating” document March 2010.

Ratings between AA and CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. 

A Standard & Poor’s rating may also include an "outlook" assessment.  An outlook assessment considers the potential direction of a long-term credit rating over the intermediate term (typically six months to two years).  An outlook assessment is not necessarily a precursor of a rating change. The common rating outlook definitions are: Positive - means that a rating may be raised; Negative - means that a rating may be lowered; Stable - means that a rating is not likely to change; and Developing - means a rating may be raised or lowered.

When did MARAC receive its rating and what factors influenced it?

MARAC’s rating was announced by S&P on 13 August 2009 and was a downgrade from MARAC’s previous credit rating of BBB- (Outlook Stable), which was MARAC’s first credit rating and was assigned in April 2006. 

MARAC’s Directors believe that MARAC’s credit rating was downgraded primarily as a consequence of the greater-than-expected deterioration in MARAC’s asset quality within the property development sector and concern that continuing challenging economic conditions may put further pressure on MARAC’s asset quality.

However, MARAC’s Directors note that S&P commented at the time of the credit rating downgrade that MARAC was one of the stronger finance companies in New Zealand, despite the asset-quality pressures, and other factors remained supportive of MARAC, including MARAC’s sound business profile, underpinned by its market position as one of the largest domestically owned finance companies in New Zealand, and its sound funding and liquidity positions.

Additional information about MARAC's rating

MARAC’s rating is a ‘long term issuer’ rating which reflects MARAC’s creditworthiness over a time period of one year or more. The rating also assesses MARAC’s capacity to repay in New Zealand dollars.

Where can I find more information?

• You can find out more information about MARAC in our Investment Statement, on our website www.marac.co.nz or by calling 0800 26 27 22 to talk to our investment team.
• The Reserve Bank has some useful information on credit ratings on its website - www.rbnz.govt.nz.
• Additional information can also be found on S&P’s website – www.standardandpoors.com.
• Investors may also wish to engage an investment adviser for independent advice and MARAC encourages you to do so. On the first page of MARAC’s Investment Statement you’ll find information on engaging an investment adviser.

Two final things to note

• Credit ratings are only one tool in assessing risk, and the Reserve Bank advises investors to seek more information on making wise investment decisions. 
• S&P’s credit ratings are statements of opinion, not statements of fact or recommendations to buy, hold or sell any securities. Ratings may be changed, withdrawn or suspended by S&P at any time.