State-of-art technology to rate credit

Newly launched credit-rating company Rapid Ratings is promising to rival global rating giants Moody's and Standard & Poor's with its state-of-the-art web-based rating system.

The Brisbane-based company, which has offices in Auckland and Wellington, says it predicted the financial distress of Air New Zealand four years before its near-collapse last year.

"We downgraded Air New Zealand in 1997 to junk bond status and they went down two notches," said Rapid Ratings managing director Patrick Caragata.

While the sharemarket thought the airline had recovered from the Asian crisis, it continued to decline on Rapid Ratings' charts, he said.

Launched this month, Rapid Ratings is the brainchild of Caragata, a Canadian-born Kiwi, who thought up the idea while walking down Lambton Quay in 1991.

Based on complex financial modelling techniques, the service took 10 years to develop, with the help of "angel investors" accountants McCallum Peterson.

Last year Baycorp's Australian rival, Collection House, took a two-thirds stake in the company and spent $2.5 million developing it into a web-based service: www.rapidratings.com

The service is aimed at investment funds, financial planning groups and stockbrokers, as well as banks and big creditors.

The website can process up to 40,000 reports a day, with a price tag ranging from $30,000 to $1 million for an annual subscription.

Caragata said the service could produce a 35-page report in about 30 seconds, and in an hour could screen the entire portfolio of an investment fund.

Best known in the 1990s for his work as chief tax policy adviser to Inland Revenue, Caragata has also written a book called Business Early Warning Systems.

He owns 33 per cent of Rapid Ratings, and says the software can anticipate "financial distress or failure" between one and five years ahead.

The Rapid Ratings database was developed by Mediasculpt of New Zealand and the website is hosted by DMZ Global, a security specialist for website development and an offshoot of Sytec Resources.

The service uses income and balance sheet figures from previous years - publicly available information - as the basis for its ratings.

A Rapid Rating of less than B3 means that an investment is a "junk bond" or a high-risk investment, while a rating above B3 is an "investment grade" or lower-risk investment.

This cut-off point is equal to Standard & Poor's BBB-minus rating. The top Rapid Rating is A1 - exceptional quality - while E4 indicates a company that is still trading but possibly insolvent.

- NZPA