Moody's Cuts Reliance Rail's Credit Ratings on Risk of Bank `Funding Gap'
Reliance Rail Finance Ltd., the funding arm of the group building trains for Sydney’s rail network, had its debt ratings cut two rungs by Moody’s Investors Service on the risk of a “funding gap.”
Moody’s lowered the company’s senior rating to Ba3 from Ba1 and its subordinated debt to B2 from Ba3 on concern banks may be able to renege on loan commitments from 2012, the risk assessor said an e-mailed statement today.
Third-party insurers that guaranteed Reliance Rail’s debt may become insolvent, Moody’s said. The downgrades affect about A$2.3 billion ($2.1 billion) of securities.
Reliance Rail’s creditor banks, which agreed in 2006 to provide a A$357 million facility to be drawn down from 2012, sent the company a letter in June reserving rights to terminate undrawn commitments under certain conditions, according to a July 2 statement from Downer EDI Ltd., which owns 49 percent of Reliance Rail.
Those conditions included a default by Syncora Guarantee Inc. and FGIC UK Ltd., so-called monoline insurers which guaranteed Reliance Rail’s debt and whose ratings were cut on mounting subprime losses amid the global credit freeze. Insurer support enabled Reliance Rail to sell A$1.9 billion of bonds in 2007 with a top AAA rating, according to data compiled by Bloomberg.
‘Credit Linkage’
Reliance Rail “remains exposed to the financial profile of its two monoline insurers, both of which continue to exhibit a weak credit profile,” Moody’s Vice President Paul Ovnerud- Potter said in the statement. “We see a degree of credit linkage” with the insurers.
The company said in an e-mailed statement today that its project funding remains in place and the first passenger train will be ready in December.
“Reliance Rail is firmly of the view that both of its financial guarantors need to default,” before the undrawn bank loan could be canceled, it said in the statement.
Reliance Rail is building 78 eight-car trains for the Sydney suburban rail network. The company isn’t part of India’s Reliance Industries Ltd. that owns the world’s largest refining complex.
To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.
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