S&P cuts Tranz Rail, still on watch

Standard & Poor's downgraded Tranz Rail Holdings Ltd. including cutting Tranz Rail Finance Ltd.'s $74.48 million 7.278% passthrough due 2008 to CCC from B-. The ratings remain on CreditWatch with negative implications.

S&P said the downgrade follows a public statement by Carter Holt Harvey Ltd. that it will not be buying any rolling stock from Tranz Rail in the immediate future. The asset sale to Carter Holt Harvey was expected to yield about NZ$10.7 million before June 2003 and was crucial to Tranz Rail's ability to meet its scheduled debt-interest expense, and the NZ$21 million Aratere ferry lease payment in June 2003.

If Tranz Rail is unable to execute alternative asset sales of material magnitude in the near term, the company will have no option but to seek further support from its lending banks before the end of June 2003 to meet the aforementioned liabilities, S&P said.

Resolution of the CreditWatch will depend on Tranz Rail's ability to continue to enjoy a supportive relationship with its banks. Although there is speculation of possible intervention and support from the New Zealand government, the nature and period of such support would be crucial in determining the credit impact on Tranz Rail.

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