Fitch could lower CRH rating

CREDIT RATINGS agency Fitch could lower its assessment of building materials group CRH after changing its outlook for the Irish company to “negative” yesterday.

Fitch is one of a number of agencies which rate companies’ and organisations’ abilities to repay their debts.

Yesterday it said it was reaffirming the rating of BBB+ that it gave CRH following the company’s €1.24 billion rights issue earlier this year.

However, it said that it was changing its outlook for the company from stable to negative, indicating that it could lower its ratings for CRH in the near future.

Lower ratings generally increase a company’s borrowing costs, as it means that the risk of them not repaying the loans has increased. Lenders charge higher interest where risks are higher.

An agency such as Fitch lowers its rating for a business, when it believes that there is an increased risk that the company cannot repay some or all of its debts, or that it will be unable to meet some of its obligations under its various loan agreements.

A BBB+ rating from Fitch means that the company is classed as “satisfactory” and indicates a low risk that CRH will default on any of its loans.

The ranking applies to both CRH plc overall and its US businesses, which generate around half its €20 billion a-year turnover.

Up to two years ago, the company would have earned “triple A” ratings from agencies such as Fitch, which is the highest ranking. However, this would have changed as the recession progressed and building activity slowed in the company’s main European and American markets.

Fitch said yesterday that it is assuming a decline of over 10 per cent in sales and a fall in earnings from CRH’s existing businesses this year.

In 2010, it believes that CRH’s performance will be flat with slight growth in earnings.

The group is spending the €1.2 billion it raised on paying off €500 million worth of debt and on buying rivals. It believes many of them will be placed on the market at attractive prices. Announcing plans for the rights issue in March, CRH chief executive, Myles Lee, said that some deals from which it walked away could be back on the market at more realistic prices.