S&P downgrades, then upgrades Geneva
Rating agency Standard & Poor's downgraded, then upgraded, Geneva Finance after investors backed the bid to defer repayments to debenture holders and gradually remove its $30 million facility with BOS over the next five years.
Tuesday, March 30th 2010, 10:08PM
by Paul McBeth
In a meeting in Auckland, some 98% of stock holders and 100% of note holders voted in favour of the revised repayment plan and amendments to the debenture trust deed. Under the terms of the new plan, debenture holders will have about half of their repayments deferred, while note holders will have their repayments put off until October.
Standard & Poor's cut the finance company's credit rating to SD from CC, something flagged in its previous report, and taken it off creditwatch negative. Two hours later the rating agency upgraded Geneva to CCC with a negative outlook, and boosted captive insurer Quest to CCC from CC.
"The upgrade on Geneva follows the company's success in securing debenture investors' approval and banker support," credit analyst Derryl D'Silva said in his report. "The ‘CCC' rating reflects our view that the finance company has a marginal liquidity position, which is expected to help it meet its immediate principal and interest repayment in full and on time under its new arrangement."
Still, D'Silva said there was significant uncertainty about the finance company's future liquidity position, which depends on favourable business.
"While management has carefully overseen operations, cash flows, and banker relationships since initially being placed into moratorium - and has compared favourably with other finance company peers that were also placed in moratorium - a return to profitability is yet to be proven," he said.
The deal also allowed the first finance company to enter a voluntary moratorium to launch a new prospectus. The document flags a risk around the company's existing hire purchase loan book, which previously targeted low- to middle-income customers at a higher risk of default.
The S&P report said good operating earnings, new debenture funding, and cash from asset sales were "critical" to the finance company's plans.
Geneva Finance has been one of the more successful finance companies to enter a moratorium, repaying investors some $65.4 million since 2007, including interest repayments.
Paul is a staff writer for Good Returns based in Wellington.
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