Credit Ratings

There are a number of credit ratings used in the New Zealand investment market. The three international global ratings providers Fitch Ratings, Standard & Poor's and Moody's, provide a global benchmark allowing comparison with all local debt issued both locally and internationally. In addition Risk Analysis (under license from AXIS Ratings -previously known as Rapid Ratings) has also rated several finance companies. A number of insurance companies use another international ratings agency, AM Best which specialises in Insurance company ratings.

For a company to be issued a rating they appoint one of the independent ratings providers to stringently scrutinise their business. The evaluation process comprehensively examines a number of areas including market position, internal procedures, the experience and competency of key personnel, balance sheet integrity and profitability and diversification of the asset base. These, combined with other financial measures, ultimately determine the underlying credit security of an organisation. The ratings company uses these factors to draw its conclusion on the ability of the company being examined to repay an investment quickly and on the original investment terms.

Some finance companies are holding back on which agency they will use, waiting on confirmation from New Zealand officials as to which agencies they will approve! In the meantime until that decision is made, it does not help investors.

We have attempted to provide a comparative table between the various agencies ratings. While we are confident there is a reasonable degree of accuracy across the rating levels that have been aligned, the approach is not scientific and it could be argued that there are other similar or proximate alignments that might also be acceptable. The credit rating equivalents table is not intended to imply that there is any correlation between the rating system and methodology of the ratings systems and methodologies of Standard & Poor's, Fitch, Moody's, and Axis Ratings. The line between Investment grade and sub investment grade is somewhat arbitrary.  None of the finance companies that have failed over the past eighteen months have held investment grade ratings from the four agencies in the following table.