Mezzanine property-development financier Vision Securities has been assigned a B rating by S&P and been put onto a negative outlook.

"Our ratings on VSL reflect its business profile as a New Zealand mezzanine property-development financier," Standard & Poor's credit analyst Peter Sikora said. "We regard this as a high-risk lending category. The ratings also reflect VSL's weak capital position, which is small and moderated by related party loans, and its concentrated loan portfolio. VSL also has a concentrated and vulnerable funding profile."

Despite this, VSL has been able to manage its business through what has been a difficult time for property-development-focused finance companies raising debentures in New Zealand. The rating also recognises our view that VSL will successfully finalise a recapitalisation transaction by the end of third-quarter (calendar) 2010, and that balance-sheet liquidity will improve with the successful relaunch of the company's debenture stock prospectus by April 2010 and with the receipt of asset-sale proceeds over the next few months.

"The negative outlook recognises VSL's recent reduction in balance-sheet liquidity and the structure of the recently arranged recapitalisation transaction," Sikora said. "A revision of the outlook to stable would require a boost in balance-sheet liquidity back to levels seen before VSL's temporary exit from the retail debenture market in September 2009 and the successful sale of VSLL shares to AIG."

The ratings could be lowered if the company's funding and liquidity positions were weakened materially as a result of worsening asset quality or profitability. We do not expect to raise the ratings on VSL any time soon; this would require a material increase in diversification and further evidence that the company can continue to manage funding, liquidity, and asset quality.