Trustee says it receives assurances from Geneva Finance

By NZPA

Wednesday 12th September 2007

Geneva Finance, the latest company to strike problems in the financial company sector crisis, today gave its trustee assurances about its financial fitness.

Yesterday, Standard & Poor's put Geneva on negative "creditwatch" saying it may be unable to manage its liquidity due to funding pressures affecting the finance company industry, following six collapses this year.

Following a meeting today -- scheduled before S&P's action -- Covenant Trustees managing director Graham Miller said: "The company is not in breach of its trust deed".

The S&P action was discussed and an amendment to Geneva's prospectus will be issued shortly.

Miller said he could not comment on whether assurances had been received on the security of a $50 million standby facility Geneva has received from the Bank of Scotland which S&P said is crucial to its future.

Geneva is one of only four NZ finance companies to have a credit rating, but its B-plus rating is "speculative grade" while others rated by S&P -- UDC Finance (AA), Marac Finance (BBB-minus), and South Canterbury Finance (BBB-minus) -- have investment grade ratings with stable outlooks.

According to KPMG's survey of financial institutions, Geneva was the 32nd-ranked finance company in 2006 by size with assets of $141m and debt securities of $127m plus subordinated debt of $9.8m.

Its prospectus published in July said it planned to grow into a "major force in the New Zealand finance industry".

At March 31, it had secured stock of $17.5m, debentures of $112.7m, and unsecured deposits of $8m. Loans had grown to $171.2m from $141.6m in 2006.

Net profit grew to $4.0m from $3.8m.

At March 31 it had cash of $7.2m an used bank facility of $12.5m (since increased by the Bank of Scotland loan) and "company cash reserves" of $19.5m.

The company operates a national network of 23 retail lending branches, which it says is its strength, and has more than 270 staff.

Geneva mainly offers hire purchase for consumer goods and cars, personal loans, insurances and small business loans.

The prospectus states a large proportion of loans are for customers "whose personal lending and finance needs are not adequately catered for by trading banks and/or because of the specific nature of the borrowing requirement e.g. secured fixed-term personal asset financing such as vehicle or retail hire purchase".

Its loans, averaging $5700 in size, are mostly secured by personal and business assets such as cars, appliances and furniture.

Geneva says it has comprehensive credit and risk management policies. If a loan goes into arrears for any reason "a key strategy is to always seek cash flow and to work closely with that customer to achieve that.

"If ultimately cash flow cannot be secured, then the collection activity will be escalated until all avenues or negotiation and payment arrangement have been exhausted and the only option is to recover the loan security and/or pursue collection through the legal process."

The company notes the majority of its lending is for the hire purchase and consumer credit market.

One of the risks it alerts investors to is a proportion of those customers, "particularly those on lower incomes", do not perform their obligations. Subsidiary Stellar Collections specialises in debt collecting.

A year ago, the Advertising Standards Complaints Board forced Geneva Finance to pull an ad for debentures it said didn't reach "a high standard of social responsibility".

Geneva's trustee is Covenant Trustees, a company which has been trustee of five of the nine companies that have collapsed in the last 16 months.

The trust deed forbids Geneva to enter into related party transactions that exceed 2% of total assets.

Geneva is owned by Finance Investments Holdings, which in turn is 85% owned by three prominent Auckland property developers, Peter Francis, Gary Hitchcock and Nigel Burton.

Francis was one of the most notorious players of the 1987 sharemarket crash as managing director and a major shareholder of property company Chase Corp, probably the most spectacular collapse of that unhappy period.

A top 10 company worth $1.3 billion at its peak, Chase was liquidated in 1989 following New Zealand's then-largest corporate loss of $841m.

Francis's fortunes have revived and his family was listed in the NBR Rich List as being worth over $50m.

Francis, with Chase founder Colin Reynolds and fellow Rich List member and 1980s high flier, Robin Congreve, are major shareholders in Symphony Investments, which owns half the management company of listed ING Property Trust.

He is co-owner of the elite Wairakei Golf Course near Taupo with yet another 1980s player and rich list member, Trevor Farmer.

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