S&P finally delivers some good news

One non-bank deposit taker has had good news from Standard & Poor's, in a week where most of the rating agency's announcements were negative.

Tuesday, 24 August 2010

S&P has revised its outlook on Avanti Finance's rating from negative to stable, at the same time it confirmed its BB- long-term credit rating.

"The outlook revision reflects our view that Avanti will continue to successfully manage its asset quality and credit costs," Standard & Poor's credit analyst Peter Sikora said.

"This will underpin its ability to generate strong interest income and pay above-market returns to debenture investors, which will support its ability to manage its funding and liquidity,".

 "In our opinion, this in turn will ensure its debenture investors and group bankers remain confident and supportive."

Avanti is a midsize finance company engaged in personal lending, motor vehicle dealer loans, and short-term property loans. Avanti's ratings reflect its focus on higher-risk lending segments, which have higher loan arrears and are more susceptible to credit losses when operating conditions deteriorate or if arrears management is relaxed.

Avanti's credit loss experience benefits from good loan security and the proactive management of loan arrears.

"We would consider lowering the ratings if Avanti were to lose debenture investor or banker support, either through financial pressures emerging at Avanti or stemming from broader market pressures such as a loss of confidence in the finance company sector as a result of additional company failures," Sikora said.

"Support has been strong, however, with some 99% of debentures now maturing after the October 12, 2010 expiry of the initial government retail deposit guarantee."

On the other hand, there are limited prospects for the rating to be raised in the short-to-medium term. This reflects Standard & Poor's view of limitations around Avanti's credit profile, particularly the high-risk nature of its lending activities, its small size, and key-person risk.

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