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MARAC Finance Ltd.



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  • 1. MARAC Finance Ltd. Long-Term Credit Rating BBB- Long-Term Rating Outlook Stable Country of Domicile New Zealand Type of Company Non-Bank Deposit Taking Company (NBDT) Company Segment Finance Company Company Specialty Diversified Finance Company Major Rating Factors Strengths – Factors that tend to support rating assigned: Good market position in the New Zealand asset-finance sector Stable and experienced management team with sound growth strategy Solid asset-quality experience Well-diversified funding base, compared with domestic competitors, with a range of funding options Weaknesses – Factors that tend to constrain the rating assigned: Business profile is focused on asset-finance and property business lines, which are higher risk, compared with domestic banking business lines Earnings impacted by declining interest and operating margins Heightened industry funding pressures Rating Summary Rationale The counterparty credit ratings on MARAC Finance Ltd. (MARAC) reflect the company's good business profile, sound growth strategy, and market position as a New Zealand finance company. MARAC has maintained sound loan growth, but has also experienced a decline in net interest and operating margins reflecting an increased focus on higher-quality lending segments, increased funding costs, and relatively strong competition. The rating has also been underpinned by the company's focus on diversifying its funding platform, which has moderated the impact of recent industry funding pressures on the company. Moderating factors are MARAC's focus on traditionally narrow product lines and on some higher-risk lines of business, although its loan portfolio is progressively seasoning. MARAC is one of the largest asset-finance companies in New Zealand, with total assets of about NZ$1.25 billion at June 30, 2007, and is the main operating entity in the NZX-listed Pyne Gould Corp. Ltd (PGC; not rated). The company is primarily involved in the financing of plant and equipment, motor vehicles, and property in New Zealand. Liquidity Liquidity is acceptable for MARAC's risk profile and the company now has a reasonably well-diversified funding base. MARAC's maturity profile has shortened over the fiscal year to June 2007 that pre-empted the drawdown of Standard & Poor’s nearly NZ$300 million of securitization facilities in August 2007, post its balance date. As at October 2007, Level 37 MARAC has a relatively wide range of funding options including retail debentures, committed banking facilities 120 Collins Street from four New Zealand banks, and the securitization facility. These facilities provide a currently adequate level Melbourne Vic 3000 of buffer to fund current requirements. ph: (61) 3-9631-2000 Primary Credit Analyst Shaun Evans ph: (64) 4-479-0044 shaun_evans@ For more information regarding "long-term credit rating" and "rating outlook" please refer to 'Frequently Asked Questions - New Zealand Non-Bank Deposit Taking Institutions,' which can be found on Client Services (61) 1300-792-553 Oct 25, 2007
  • 2. MARAC Finance Ltd. Outlook MARAC's stable outlook reflects Standard & Poor's expectation that financial characteristics including a disciplined and quality-focused growth strategy will be sustained. Despite continued potential for weakening margins arising from the competitive operating environment and from a stronger focus on quality lending to some segments, profitability should remain satisfactory. The stable outlook also reflects our expectation that MARAC will be able to adequately contend with the reduced levels of confidence in the industry due to recent failures without the need to curtail its normal levels of lending and to be able to satisfactorily manage a period of higher interest-rate volatility. Standard & Poor's anticipates ongoing management commitment to maintain credit underwriting standards and support current capital-adequacy levels. Key Rating Factors Profile Good Franchise and Brand Profile MARAC has a good franchise and brand profile for its business operations. All activities are in New Zealand, and the company is primarily involved in the provision of financing for plant and equipment assets, motor vehicles, marine assets, and property development and investment. The company's operations were, prior to August 2007, categorized principally as on-balance sheet lending, but have since established a securitization capability where about NZ$300 million of loans were sold. MARAC's income is spread between interest, fee, and lease income. At fiscal 2007, MARAC was among the largest finance companies in New Zealand with total assets of NZ$1.25 billion. Ownership and Legal Status Benefits From Parent’s Public Listed Status MARAC's financial flexibility benefits from its NZX-listed parent in terms of providing future capital and funding options if required. MARAC is a New Zealand-based finance company and wholly owned subsidiary of Pyne Gould Corp. Ltd. (PGC), a New Zealand listed holding company with a market value of over NZ$400 million, at Sep. 28, 2007. The company shares management links with PGC and is a major contributor to group earnings. Strategy Sound and Well Developed MARAC has demonstrated an ability to execute a sound and well-considered strategy. The ability to continue to apply a consistent strategy targeting moderate growth is likely to be increasingly challenged whilst New Zealand finance company failures continue to rise, heightening investor uncertainty. Standard & Poor's considers MARAC to be well placed to take advantage of opportunities that will arise as the industry consolidates. Risk Management Adequate Capabilities – Good Asset Quality and Improved Liquidity Management MARAC's overall risk-management approach is adequate for its profile, and the company's principal risk is credit risk from its on-balance-sheet lending. Appetite for credit risk is moderately high given the company's involvement in some higher-risk sectors of property development and asset finance, compared with commercial banks. Risk tolerances, underwriting standards, and risk-adjusted performance measures are well documented. The risk-management framework benefits from the close proximity of management to the underwriting process and high level of communication by senior management. Regular Board reporting, and both internal and external audits are also in place to support the identification and management of risks. MARAC's asset-quality experience has been good over the past few years. MARAC's liquidity management has improved over the past year with the number of wholesale committed credit lines increasing to four and with the introduction of a securitization facility of approximately NZ$300 million that was drawn in August 2007. The industry has experienced increased funding pressure as new debenture funds and renewal of maturing debentures have decreased. MARAC has not been immune to the increased investor uncertainty but is better placed, compared with many competitors, to contend with these conditions. Oct 25, 2007
  • 3. MARAC Finance Ltd. Profitability Sound Although Affected By Declining Interest Margins MARAC's earnings profile is sound, albeit impacted by declining net interest margins, but benefiting from growth in net loan receivables and sound non-interest revenue. The company's earnings profile indicates a lower reliance on net interest income relative to peers, which supports its earnings resilience. Cost efficiencies and low credit costs have also supported operating profitability. Pre-tax profit was NZ$37.2 million at the full year to June 30, 2007, representing an increase of 7.4% on the prior year. Capital Good Quality and Quantity Compared With Domestic Peers MARAC's capital adequacy is consistent with the company's risk profile; and its quality of capital is very good. The relatively small absolute size of capital compared to international peers, however, limit the company's ability to absorb unforeseen credit or operational risks. However, from a New Zealand-peer perspective, it has one of the largest absolute capital bases at NZ$124.4 million or NZ$126.4 million on an adjusted-total-equity basis, which takes into account general reserves. MARAC has good internal-capital-generation capabilities, and after payment of dividends, has typically retained approximately 40%-50% of its profit after tax in the last two years. The quality of capital available is also strong, and consists solely of retained earnings and share capital. Financial Highlights MARAC Finance Ltd.: Key Financials - Past 5 Years 2007 2006 2005 2004 2003 Total Assets NZ$(mil) 1246.0 1080.9 957.0 806.2 691.8 Total Common Equity NZ$(mil) 124.4 110.8 100.6 90.2 82.2 Net Profit After Tax NZ$(mil) 24.9 23.2 21.5 17.6 7.7 Non-Performing Assets/Total Loans % 2.42 3.28 2.09 2.01 3.27 Return on Average Assets % 2.14 2.28 2.43 2.34 1.29 Common Equity/Average Assets % 9.99 10.25 10.51 11.19 11.88 Selected Rated Peers – Key Financials - Latest Fiscal Year Non- Performing Common S&P Long Total Total Net Profit Assets/ Return on Equity/ Term Assets Equity After Tax Total Average Average Rating*** NZ$(mil) NZ$(mil) NZ$(mil) Loans % Assets % Assets% Marac Finance Ltd BBB- 1246.0 124.4 24.9 2.42 2.14 9.99 South Canterbury Finance Ltd ** BBB- 1357.8 68.5 26.9 3.33 2.18 5.04 UDC Finance Ltd ** AA 2385.0 182.0 30.0 1.79 1.22 7.64 Geneva Finance Ltd. D 171.2 9.3 4.0 11.43 2.57 5.41 Industry Average* N.M. 433.1 42.3 8.4 2.88 1.93 10.95 *Industry averages complied from peer group of 30 New Zealand finance companies; ** 2006 Full year accounts; ***Long- term ratings stated are correct at date of publication of this report. For up-to-date ratings see N.M.=not meaningful What Do Standard & Poor’s Ratings Mean? Readers should use this document in conjunction with ‘Frequently Asked Questions – New Zealand Non-Bank Deposit Taking Institutions,’ which can be found on Oct 25, 2007
  • 4. MARAC Finance Ltd. Published by Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY 10020. Editorial offices: Level 37, 120 Collins Street, Melbourne, VIC 3000, Australia; Suite 3003, 30th Floor, Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong Kong; 30 Cecil Street, Prudential Tower #17- 01/08, Singapore 049712. Subscriber services: (61) 3-9631-2144. Copyright 2007 by The McGraw-Hill Companies, Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by Standard & Poor’s from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Standard & Poor’s or others, Standard & Poor’s does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from the use of such information. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. Standard & Poor’s uses billing and contact data collected from subscribers for billing and order fulfillment purposes, and occasionally to inform subscribers about products or services from Standard & Poor’s, our parent, The McGraw-Hill Companies, and reputable third parties that may be of interest to them. All subscriber billing and contact data collected is stored in a secure database in the U.S. and access is limited to authorized persons. If you would prefer not to have your information used as outlined in this notice, if you wish to review your information for accuracy, or for more information on our privacy practices, please call us at (1) 212-438-7280 or write us at: For more information about The McGraw-Hill Companies Privacy Policy please visit Analytic services provided by Standard & Poor’s Ratings Services (“Ratings Services”) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor’s may have information that is not available to Ratings Services. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process. Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or third parties participating in marketing the securities. While Standard & Poor’s reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Additional information about our ratings fees is available at Permissions: To reprint, translate, or quote Standard & Poor’s publications, contact: Client Services, 120 Collins Street, Melbourne, Vic 3000 Australia, (61) 1300-792-553. This report and the ratings contained within it are based on published information as of September 12, 2007 Subsequent information may result in the assignment of ratings that differ from the ratings published here. Please call Standard & Poor’s Client Services at (61) 1300-792-553 for the most recent rating assigned. For Australian Users In Australia, credit ratings are assigned by Standard & Poor’s (Australia) Pty Limited, which does not hold an Australian financial services license under the Corporations Act 2001. Any rating and the information contained in any research report published by Standard & Poor’s (Australia) Pty Limited is of a general nature. It has been prepared without taking into account any recipient’s particular financial needs, circumstances and objectives. Therefore, a recipient should assess the appropriateness of such information to it before making an investment decision based on this information. Oct 25, 2007