by Jenny Ruth
"The rating action follows Geneva's announcement that it will seek subordinated noteholder approval to convert existing debt interests to equity," says S&P credit analyst Peter Sikora.
A "CC" rating means a company is "highly vulnerable to nonpayment."
S&P's view is there is a high likelihood that the noteholders will agree to a debt-for-equity exchange at a level less than par, which would result in the ratings on Geneva being lowered to "SD" when the exchange is completed in April, Sikora says.
"SD" means selective default and means a company has failed to pay one or more of its financial obligations but that S&P believes it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.
"A selective default includes the completion of a distressed exchange offer," S&P says in its definitions of its ratings.
Holders of $4.4 million of subordinated notes will vote on March 31 on converting every $1,000 face value of their notes to 20,000 shares at an assumed five cents per share issue price.
Geneva shares last traded at five cents but an investor asking for four cents has found no buyers.
Independent expert Northington Partners has said noteholders are unlikely to receive anything under receivership or an alternative wind-down scenario, even if the business performs significantly better than expected.
Sikora says after the notes are converted, S&P's ratings on Geneva and Quest will be raised to no higher than "CCC" following further review of the group.
"S&P's view is that, should investors and shareholders reject the plan, there is a high chance of Geneva being forced into receivership," he says.
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