S&P slashes GFNZ credit rating to "currently highly vulnerable"

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GFNZ's (formerly Geneva Finance) credit rating has been slashed to "currently highly vulnerable" after its failure to date to secure new funding.

Thursday, August 23rd 2012, 12:38PM

by Jenny Ruth

International ratings agency Standard & Poor's cut GFNZ's rating to "CC" from "CCC-" which had meant the company was "currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments," according to S&P ratings definitions.

While S&P has removed the company from negative credit watch, it says the outlook for the rating is negative.

"The rating action reflects our heightened concerns that GFNZ could default in the next few months if it is unsuccessful in securing new additional external funding," says S&P credit analyst Harry Hu.

The deferral of a planned $1.5 million one-for-four rights issue (S&P calls it a four-for-one issue with net proceeds of $1.4 million) "adds to heightened sensitivity around the finance company's ability to meet its debt obligations in September 2012," Hu says.

On August 14, GFNZ said it was deferring the issue because it couldn't get the paperwork ready in time for its annual shareholders' meeting on August 28. It said then it would make a further announcement by early October "once the board has a clearer picture on timing."

Also on August 14, the company said it was repaying $1.25 million due to debenture holders and $1.25 million due to Bank of Scotland on August 17, ahead of the scheduled September 30 repayment date. A further $1.25 million is still due to be paid to each party by September 30.

GFNZ managing director David O'Connell told GoodReturns he was in a meeting and unable to discuss the company's affairs today but did say: "We have every expectation of making all our payments on time or early," when asked whether GFNZ would meet the September 30 repayment.

GFNZ hasn't had a prospectus to attract debentures since June 2011 after a Financial Markets Authority order. The rights issue was to have been fully underwritten by 20% shareholder Federal Pacific Group and FedPac was also supposed to provide $6 million in debt funding in two tranches but deadlines for this to be in place have come and gone.

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