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SCF placed on CreditWatch negative

South Canterbury Finance (SCF) has been placed on CreditWatch negative by Standard & Poor's (S&P).

Monday, September 21st 2009, 3:04PM

S&P has placed its ‘BB+' long-term rating on the New Zealand-based finance company on CreditWatch with negative implications.

This rating action follows the rating agency's concern that SCF's risk profile has increased since lowering the ratings on the company on August 13, 2009.

A CreditWatch Negative listing by S&P implies a one-in-two likelihood of the rating being lowered within the next three months.

"Our concerns centre on increasing pressure on liquidity; still-weak asset quality; and governance matters including, but not limited to, related party exposures," S&P said in a statement.

Since its rating was lowered, SCF has ceased allotting securities under its existing debenture prospectus (unrated by S&P), provided market guidance of an increase to its unaudited net after-tax loss for fiscal 2009 to $69 million, and had two of its four directors resign with pending replacements.

These negative developments have occurred against a backdrop of a major restructuring and recapitalisation initiative that SCF has said it will announce in coming weeks.

"The CreditWatch action reflects our view that, with no debenture prospectus in the public domain, SCF's funding flexibility and liquidity are undermined at the ‘BB+' rating level, at least in the short term," S&P credit analyst Derryl D'silva says.

Technically, SCF does not have access to the new and reinvested debenture funds, which reside in a trust account. This increases pressure on SCF's funding and liquidity.

Furthermore, SCF's liquidity levels are modest after the company's decision to shift its holdings of liquid assets from cash to higher-risk and higher-yield investments, and in related-party entities of uncertain credit-standing.

The company said the ‘BB+' rating continues to reflect its view that SCF's primary shareholder, Allan Hubbard, will remain committed to providing timely support to SCF if required.

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