Tuesday 20 June 2017 by FIIG Research Company updates

Company updates – Australian bank downgrades, Hertz and IPG

This week, 12 Australian banks were downgraded by Moody’s, new DirectBonds from Hertz and IPG update its sale process

Moody’s lowers the credit ratings of 12 Australian banks

On 19 June, Moody’s Investors Service (Moody’s) lowered the long term credit ratings of 12 Australian banks by one notch.

The move follows last month’s ratings action by S&P, where they downgraded 23 Australian financial institutions on the increased potential for a sharp correction in property prices. We note that S&P and Moody’s ratings downgrades are not the same – S&P lowered the stand alone credit profiles (SACP) while Moody’s downgraded the long term credit ratings.

Specifically, the long term ratings of Australia’s four major banks – ANZ, CBA, NAB and Westpac – were downgraded to Aa3 from Aa2, and outlooks revised to stable from negative by Moody’s. Their short term ratings remained unchanged and affirmed at A-1.

Other banks that suffered a downgrade included: Bendigo and Adelaide Bank, Heritage Bank, ME Bank, Newcastle Permanent, QT Mutual, Teachers Mutual, Victoria Teachers Mutual and Credit Union Australia.

Moody’s stated that elevated risks within the household sector had heightened the sensitivity of Australian banks’ credit profiles to an adverse shock. While they do not anticipate a sharp housing downturn, the risk of rising household debt – coupled with low wage growth and rising underemployment levels – would take a considerable amount of time to unwind.

A summary of the ratings downgrades and outlook actions from Moody’s are below.

Bank From To
ANZ P-1/Aa2/Negative P-1/Aa3/Stable
Bendigo and Adelaide Bank A2/Stable A3/Stable
CBA P-1/Aa2/Negative P-1/Aa3/Stable
Credit Union Australia P-2/A3/Stable
Heritage Bank P-2/A3/Stable
ME Bank P-2/A3/Stable
NAB P-1/Aa2/Negative
Newcastle Permanent Building Society P-1/A2/Stable
QT Mutual Bank P-2/A3/Stable
Teachers Mutual Bank P-2/A3/Stable
Victoria Teachers Mutual Bank A3/Stable Baa1/Stable
Westpac P-1/Aa2/Negative

P-1/P-2 are Moody’s upper medium grade short term ratings – strong payment capacity
Aa2 to Baa1 are Moody’s long term ratings, from “highest quality” (Aa2) to “Lower medium grade – Adequate but weakened payment capacity” (Baa1)
Stable/Negative are Moody’s issuer outlooks

Second Hertz USD bond added to the DirectBond list

We have added the recently issued Hertz Corporation 7.625% bond maturing on 1 June 2022 to the DirectBond list. Unlike the Hertz 5.50% October 2024 senior unsecured bond, the 2022 is secured with a second priority charge. S&P assess that the notes would receive substantial recovery (rounded estimate: 75%) of principal in the event of a payment default. The agency gives a 0% recovery to the unsecured notes.


Hertz operates a vehicle rental business globally through the Hertz, Dollar and Thrifty brands from approximately 9,700 corporate and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Caribbean, the Middle East and New Zealand. It is one of the largest worldwide airport general use vehicle rental companies and the Hertz brand name is one of the most recognised in the world.

Bond comparison

  USD 7.625% 1 June 2022 USD 5.5% 15 October 2024
Rank Senior second priority secured Senior unsecured
Rate 7.625% fixed 5.50% fixed
Maturity date 1 June 2022 15 October 2024
Bond ratings (S&P/Moody's)
BB-/B1 B-/B3
S&P recovery in default 75% 0%
Indicative offer price $100.90 $81.15
Indicative yield to worst 7.36% 9.08%
Factsheet link FactsheetExternal link - opens in a new window FactsheetExternal link - opens in a new window

Source: FIIG Securities, Bloomberg
Pricing accurate as at 20 June 2017 but subject to change; indicative only
Bonds available to wholesale investors only 

Please refer to the factsheets for more information.

IPG sale process well underway

The Australian newspaper has reported that the sale process for IPG is well underway. As previously noted, it is likely the acquirer would be a large national or multinational, with a lower cost of funding compared to the cost of the 2019 maturity FIIG bond. It is therefore highly likely the bond would be called as part of the transaction.

The Australian states that groups thought to have taken a look or remain in the process include: the packaging company interests of private equity firm The Carlyle Group, including Signode and Novolex, the Australian listed Pact Group Propak, Coveris, Berry Global, Sealed Air and RPC out of Britain.

The FIIG originated bond is callable:

  • Any time until September 2018 at 102%
  • Any time after September 2018 to maturity at 101%

IPG must give a maximum of 30 and minimum of 15 days’ notice to redeem the notes. There is a change of control provision* in favour of noteholders at 101%. This is not applicable under an ASX initial public offering.

*More information on bond covenants is available here.External link - opens in a new window