S&P take a wait and see approach to South Canterbury

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Ratings agency Standard & Poor’s will retain its ‘wait and see’ attitude around South Canterbury Finance as the finance company undergoes an overhaul with Timaru-millionaire Allan Hubbard’s Southbury Group.

Monday, January 11th 2010, 11:28PM

by Paul McBeth

South Canterbury has been pulled under the new umbrella of Southbury Corp, along with Hubbard's Helicopters NZ and Scales Corporation, and received a $27.5 million injection after the parent company raised capital through a private placement to institutional and private investors.

S&P primary credit analyst Derryl D'silva told www.depositrates.co.nz the capital raising was one of the first steps for the company to get off its negative outlook, which gives it a one-in-three chance of being downgraded from its current sub-investment grade BB+.

"The money was pushed into the finance company, making it directly available for debenture holders," D'silva said. "There's negative pressure around the company's liquidity, asset quality and related-party investments" and these need to be addressed before the negative outlook can be removed, he said.

S&P removed its creditwatch negative rating last month after the company announced it would undergo a major restructure and lodged a new prospectus to take on new deposits. Hubabrd appointed Sandy Maier to head up his Southbury Group and South Canterbury Finance to affect change over the coming year.

Hubbard was forced to inject funds into his finance unit and underwrite bad loans in 2009 after it posted a net loss of $69 million in the year through June, and was forced to negotiate repayment terms with a group of US investors after it lost its investment grade credit rating.

Milford Asset Management analyst Alan Moore, said the $2.8 billion of total assets in the new Southbury was interesting, though its net assets of some $300 million as at June 30 could be of some concern.

If Southbury  was to list on the stock exchange, the company would have to crack down on its related-party transactions, Moore said, though Maier was more than capable of achieving this.

When S&P removed their creditwatch outlook for South Canterbury last month, its report said "any recapitalisation plans favoring debt rather than equity - or involving a complex reorganisation of business units within the Southbury Group (unrated) - which may weaken the interests of SCF debenture or other liability holders will likely trouble the rating."

Its immediate concern is the company's need to maintain higher liquidity ahead of its restructuring, and it warned failure to do so would probably lead to another rating downgrade.

Paul is a staff writer for Good Returns based in Wellington.

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