Thursday 3rd March 2011
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NZF Money's issuer rating has been cut to CCC by Standard & Poor's, which regards the finance company as "delicately placed".
S&P is keeping the rating on creditwatch with negative implications, which implies a one-in-two likelihood that it may be lowered within the next three months.
"The rating action reflects our view that NZF's liquidity position has weakened, largely as a result of a material rise in past-due loans, compounded by some volatility in NZF's debenture-reinvestment experience," Standard & Poor's credit analyst Nico De Lange said.
The company is positioned to meet its liquidity needs over the next few months from cash flows generated from the repayment of a number of past-due loans but Standard & Poor's believes NZF's liquidity position is delicately placed.
"In our view, the company could run short of cash if loan repayments are not progressed as anticipated - notwithstanding that forecast loan repayments over this period are on loans where there is an unconditional sale contract in place and NZF's confidence around prospects that loans will be settled," De Lange said.
NZF Money was previously known as New Zealand Finance and is wholly owned by NZF Group, which is listed on the New Zealand Stock Exchange.
Chief executive Mark Thornton said that the move by S&P was not entirely unexpected, as the company no longer had a guarantee under the New Zealand Deposit Guarantee Scheme.
In addition, there were concerns over the current economic outlook for New Zealand and negative bias towards the New Zealand finance company sector, which was still going through a period of turmoil.
Chairman of NZF Money, Craig Alexander, said that the increase in past due loans was a direct result of the company's decision to purposely allow a number of loans to expire at the end of loan facility agreements, in order to keep its recovery options open, improve its ability to renegotiate revised lending terms and conditions, and to control the sale and recovery process where necessary.
The company's forecast liquidity position was based on a number of unconditional sales contracts in place that are due to settle in the next two months, which would result in the company sitting on significant cash reserves.
The directors are confident that the unconditional sales contracts will settle and the company expects to resume new lending within the next six months. It has continued to comply with all of its trust deed covenants and ratios.
The reinvestment rate for the month of February was 41.68%.
NZF Group said in its interim report that although the introduction of the Crown Retail Deposit Guarantee Scheme on October 12, 2008 achieved its objective of stabilising the market, it also had the adverse effect of attracting large numbers of investors only seeking a higher return with a government guarantee, who had no intention of remaining long term investors.
The expiry of the scheme on October 12 last year put unnatural pressure on cash flows nearing the expiry of the guarantee, it said.
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