S&P:No Downgrades for Financials, Insurers from Japan Airlines Bankruptcy

Standard & Poor’s Ratings Services stated that its ratings on Japan’s financial institutions and insurance companies “would be unaffected by the debt forgiveness requested by Japan Airlines Corp. (JAL) to lenders as part of its bankruptcy procedures under the Corporate Reorganization Act filed on Jan. 19, 2010.”

With the bankruptcy filing, creditor private banks and insurance companies have been asked to forgive debt of ¥210 billion [$2.289 billion]. S&P pointed out that as a result of the “debt forgiveness, in combination with impairment losses from their stock holdings in JAL, is likely to lower their revenues.” However, S&P added that it doesn’t expect the impact to be “within the tolerance of the current ratings.”

Losses from preferred stock in JAL are also expected at six major trading companies rated by S&P and are similarly unlikely to affect the ratings on them.

S&P said: “Losses at creditor banks are likely to be at about a maximum of 10 percent of annual net operating profits, which would not substantially impact their financial standings.” In addition Creditor banks rated by S&P have “increased their loan loss provisions at the end of the first half of fiscal 2009 (ended Sept. 30, 2009).” Their “credit costs have remained lower than they initially expected. As such, debt forgiveness is unlikely to materially impact their profit projections for fiscal 2009. The impact on insurance companies is likely to be limited.

“Six major trading companies underwrote preferred stock in JAL worth ¥5 billion to ¥20 billion [$5.45 million to $21.8 million] under the airline’s rehabilitation plan announced in 2008. These stocks are likely to have no value.

“Sojitz Corp. (BBB-/Stable/–), which announced that it will write off its preferred stock in JAL worth ¥15 billion [$16.35 million], is likely to face the largest impact on its profits among the six trading companies, and it is expected to lower its ¥27 billion [$29.4 million] net profit projection for fiscal 2009.

“In addition to preferred stock, some trading companies have other exposures, such as derivative contracts and aircraft leasing receivables, which could be affected. However, these losses may pressure their revenues only temporarily, and have a limited impact on their financial standings, given that their profitability is on a recovery trajectory supported by favorable trends in the commodities markets.

A Japanese-language version of this media release is available on Standard & Poor’s Research Online at www.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ <GO>.

Source: Standard & Poor’s – www.standardandpoors.com