South Canterbury gets big ratings cut

Standard and Poor's has cut South Canterbury Finance's credit rating by two notches after the government put the embattled finance company’s owner Allan Hubbard and some of his interests into statutory management.

Tuesday, June 22nd 2010, 4:05PM

It has lowered the finance company's rating to B-minus and put the firm on creditwatch negative.   The short-term rating was cut to C from B and also placed on creditwatch negative. 

The downgrade has also prompted the firm to withdraw its prospectus for amendment after it reissued it this morning. SCF chief executive Sandy Maier said the amendment to the prospectus will be registered as soon as possible.  

"SCF's experience of managing forward maturities for the months leading into October 2010 has improved from previous months but will likely be more difficult to maintain from now on," said S&P credit analyst Derryl D'Silva. "SCF's ability to raise new debentures could also be at risk."  

South Canterbury Finance was excluded from the statutory management, and Treasury affirmed its status under the retail deposit guarantee, though the firm flagged the government's decision was a risk to its ability to raise new funds from the public.  

The rating agency said it will review the creditwatch negative outlook, which gives a one-in-two chance of a further downgrade, in the next couple of weeks to get some clarity about investors' reaction to the news.  

D'Silva said S&P was also concerned that the company's "recapitalisation efforts could be compromised or delayed" by the news, though Hubbard yesterday said he expected to reach an agreement with an overseas investor to inject capital in South Canterbury Finance.  

Maier said in a statement that "investors should note that the Government has stated that South Canterbury Finance is specifically excluded from the statutory management order concerning Mr & Mrs Hubbard and certain of their business interests." 

"Further, the Treasury has reaffirmed that the extended retail deposit scheme continues to apply to eligible investors in South Canterbury Finance. 

"If anything, the rating action reinforces the determination of the directors and management to build on the good progress already achieved to turnaround the business of the Company," said Maier. 

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