S&P says Chch City debt levels already high, but any downgrade would only be 1 notch

Credit rating agency Standard & Poor’s says it has put its Christchurch City Council and Christchurch City Holdings ratings on CreditWatch with negative implications ahead of more analysis of the financial and operational consequences of Saturday morning's earthquake.

S&P has a ‘AA+’ rating on Christchurch City Council and its subsidiary Christchurch City Holdings. The credit rating agency said it was monitoring developments in Christchurch to gauge the situation faced by the council and its holdings company in dealing with the effects of the earthquake on their assets and operations.

"We have previously noted that Christchurch City’s debt levels are high for the current rating and approaching levels that could lead us to reassess the rating," said S&P.

"We expect to resolve the CreditWatch during the next 90 days as more-accurate information becomes available regarding the extent of damage and state of repairs, insurance coverage, and the impact of the quake on these entities’ risk profiles, among other factors."

It noted there had been widespread damage to infrastructure assets, although most of this should be insured.

"There may also be secondary effects on the council, as the council not only replaces infrastructure but also participates in the rebuilding of the local community’s assets. Based on any such information and its implications on the credit quality of Christchurch City and/or the holding company, we may take further rating actions as the situations warrants. Any rating action would not likely exceed one notch downward."

Meanwhile, S&P said the earthquake had no immediate implications for Christchurch International Airport's A- credit rating.

"The airport’s operations are continuing and have been largely unaffected by the earthquake," S&P said. "The company has also indicated that it will seek reimbursement via insurance to complete repair work identified at the airport to date. In our view, the airport’s liquidity is adequate."

That said, downward pressure on the rating may emerge if there were "substantial and prolonged negative implications" from the earthquake on the airport's passenger traffic, or if cash flows were materially affected by repair works, or if the airport's operations were negatively affected.