F&P Finance relying more on cheaper bank loans

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Fisher & Paykel Finance's debenture reinvestment rates rose in recent months reflecting increased confidence from investors after the finance company received the government's approval under the extended retail guarantee scheme.

Tuesday, September 14th 2010, 6:40AM

by Sophia Rodrigues

Average reinvestment rates rose to around 71% during the period April-July 2010 from around 65% average in the full year period to March 2010. The company was accepted into the extended guarantee scheme on May 18.

The increase in debenture investment should help the company reduce its reliance on bank loans though the latter works as a much cheaper option for the finance company.

In the year to March, according to its recently released annual report, F&P borrowed more from a syndicated banking facility of $335 million it has from three banks, increasing the amount to $176 million from $122 million the year before.

Debentures during the same period fell from $203 million to $157 million.

F&P recently received approval for extension of the maturity dates of two of its four tranches of the syndicated banking facility. Tranche A of $20 million will now mature in April 2012 and tranche B of $105 million will mature in October 2013.  Both these tranches had a maturity date of April 2011 earlier. The other two tranches comprising of NZ$105 million each expire in September 2011 and October 2012.

The bank loans are a combination of call and short term loans and bear interest at an average rate of 3.8% making it a cheaper option compared with debenture funding. They, however, come with strict financial covenants including limit prior charges, liquidity ratio, minimum capitalisation and interest cover.

On the other hand, the weighted average cost of debentures excluding brokerage and guarantee fees was 7.3% in the year to March.

The company had a series of capital injections in the year to March but didn't indicate if any of them was in response to a breach of one of the financial covenants. Total capital infused was $27 million though $15 million was conversion of a debt into equity via a group company.

In June, the company again received $2.5 million capital injection from its parent Fisher & Paykel Holdings which was used to boost its investment in a non-guaranteeing subsidiary Consumer Insurance Services.

F&P Finance says it can no longer obtain additional funding from its ultimate parent FPAHL and from Fisher & Paykel Appliances because of the terms of FPA's renegotiated debt facility which matures in April 2012.

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