Geneva faces more trouble while NZF looks to recapitalise

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Standard & Poor’s has given NZF Money a credit rating, along with a warning and also intimated Geneva Finance is on a downward path.

Wednesday, February 24th 2010, 11:27PM

by Paul Mersi

S&P cut Geneva Finance's rating from CCC to CC over the renegotiation of its banking facility with BOS International . As reported earlier Geneva will see its wholesale funding line reduce from $35 million to nothing over the next five years. The ratings agency said the new arrangement will likely cause "a selective default on existing obligations in the short term," and put the company on creditwatch negative, giving a 50:50 chance of a further downgrade in the next three months.

"Standard & Poor's view is that investors are likely to approve the plan, which would result in Geneva having completed a distressed exchange offer that would result in a payment default, and we would subsequently lower the rating to ‘SD' on the day the approval comes through," said analyst Derryl D'Silva in his report.

This week Geneva defended its position not to wind down the company after BOS International signalled it would not extend its facility beyond April, and negotiated a gradual withdrawal of the facility over the next five years. The deal has to be ratified by investors, and meetings will be held at the end of March.

In another report, S&P gave NZF Money a B credit rating with a negative outlook due to the "weakly capitalised parent, NZF Group" and potential liquidity risks.

NZF managing director John Callaghan flagged this possibility yesterday, and today announced it is working with Ecko Capital, the vehicle of former Hanover chief executive Andrew Schmidt, to formulate a recapitalisation plan.

Yesterday, Callaghan said the NZF Money subsidiary had repaid its bank facility with Commonwealth Bank of Australia after it expired at the end of last year.  

"While CBA offered to extend the line, in the opinion of the company, the costs of rolling over exceeded the benefits and given our strong cash position we elected to repay the line in full," Callaghan said in a statement.  

Though NZF Money no longer has any facilities with CBA, the company said the bank remains an important partner to NZF, "particularly with future strategist being contemplated." 

Paul Mersi is PricewaterhouseCoopers Tax Partner and Head of Financial Services

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