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1998-04-29 09:39:50


Leasing and Finance: Y2K Is Worst Problem in 25 Years



The millennium bug is the greatest problem in a quarter century says one rating agency of the leasing and finance industry. What does the rating firm intend to do about this? Nothing much. There will be no y2k-related changes announced in its ratings of companies.

Well, why should they? If an entire industry will take the hit in the year 2000 -- and it will -- why distinguish one company from another in terms of its y2k progress? This is the attitude of all of the stock and bond rating organizations. Why create concern prematurely? If everyone is going down together, why single out anyone? They remain silent on y2k's effects on any given company.

But all industries say that most of their members will make it, that y2k will affect only a few firms. Then why not identify those firms by downgrading their ratings?

There is something amiss here. There is a hidden agenda.

The fact that ratings agencies refuse to do this with respect to y2k points to the grim reality: the y2k threat is so all-pervasive that the ratings firms are afraid of lawsuits for singling out specific firms as uniquely vulnerable. So, the public will not be warned by the ratings firms to get out of either specific companies or out of all of the financial markets.

There is a built-in incentive system for all participants to lie.

This is from Reuters (April 21).

* * * * * * * *

NEW YORK, April 21 (Reuters) - Weaker asset quality, interrupted cash flow and possibly a number of bankruptcies potentially await the finance and leasing industry because of the Year 2000 bug, according to Fitch IBCA.

The rating agency has drafted a soon-to-be issued report, made available to Reuters Tuesday, on what it said is the biggest challenge facing the finance and leasing sector in the last 25 years. . . .

``Companies not only need to upgrade or modify their computer hardware and software systems,'' the rating agency said, ``but make sure counterparties are also (Year 2000) compliant.''

Those counterparties include obligors, vendors and financial institutions. ``If the counterparties are not (Year 2000) compliant, the impact on the issuer could be significant,'' Fitch IBCA said, ``including weaker asset quality and cash flow as a result of payment disruptions or possibly obligor failure.''

While most companies in the finance and leasing sector are working toward compliance, it is unlikely they will all be ready in time, the rating agency said, because of the sheer number of coding changes, logistical problems and other complications that could arise. . . .

Fitch IBCA also noted that, according to the American Management Association, five to seven percent of midsize companies could go bankrupt as a result of the Year 2000 bug.

The rating agency said there are currently no ratings changes being contemplated based on Year 2000 compliance, but ``due diligence will be heightened for those finance and leasing companies that may hesitate in fully addressing the (Year 2000) problem.''


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