S&P leans hard on Tranz Rail

By PAM GRAHAM

Standard & Poor's yesterday gave Tranz Rail two weeks to improve its financial position or face a credit rating downgrade.

Tranz Rail's bank loan facility was fully drawn and its cash balances were low, said S&P. Although the operating performance improved in the first half, export markets were now uncertain, heightening concerns about finances.

Options open to the rail operator include making progress on selling assets or asking its banks for a bigger credit limit.

"If there is no immediate material improvement in Tranz Rail's financial headroom, the ratings will be adjusted downward," said S&P.

Parvathy Iyer, from S&P in Melbourne, would not rule out a double downgrade.

A downgrade from Tranz Rail's current rating of BB plus - below investment grade - would not trigger a financial crisis at the company, though it could increase its future borrowing costs.

Tranz Rail's chief financial officer Wayne Collins said the bank facility was not fully drawn down and the company had $8 million in the bank.

He said S&P tended to take a pessimistic view.

This week Tranz Rail invited offers for its Tranz Metro passenger services in Wellington.

Tranz Rail raised $65 million in a rights issue at 75c a share last year as part of a crucial refinancing package.

Analysts said the company had stronger cash inflows at this time of the year than at other times and it could sell buildings and rolling stock relatively quickly.

Repayments of debt end in March, chief executive Michael Beard has said. The company's stock fell 3c to $1.05 yesterday.