Geneva Finance seeks debenture repayment freeze after default

By NZPA

Wednesday 17th October 2007

Geneva Finance is asking its investors for a 6-1/2-month freeze on debenture repayments after falling into default on Monday.

The company said it had 3000 investors with a total of $138 million invested, including a line of credit of up to $50 million from the Bank of Scotland International.

Rating agency Standard & Poor's yesterday lowered its ratings on Geneva to the default-level D from B-.

"A payment default has occurred with Geneva's nonpayment of debenture redemptions upon the due date. Under these circumstances, the only available course of action to Standard & Poor's is to lower the long-term counterparty credit rating on Geneva to D," S&P director Gavin Gunning said.

As well as being used when a payment is in default, the D rating is also used when a bankruptcy petition is filed, or similar action taken that jeopardises payments of an obligation.

Earlier yesterday Geneva had said it was to ask its investors for a moratorium on all investments until the end of April.

Under the proposal all investment maturities would be extended by 6-1/2 months, interest would be paid monthly during the period, no new investments would be accepted, and the company would continue to trade and lend.

All investments made since Thursday had been placed in trust and would be returned to investors this week, Geneva CEO Shaun Riley said.

The proposed moratorium would apply from last Monday (Oct 15), and be put to investors at a meeting on November 5.

Gunning said today that if the moratorium proposal was supported by Geneva's investors, it was "very likely" the S&P rating would be raised.

"On the other hand, should the proposals be rejected by investors, Geneva's trustee will proceed with enforcement action," he told Radio New Zealand.

Just a week ago, S&P downgraded Geneva from B+ to B-. At the time Gunning said the change reflected a sense that Geneva's short-term liquidity and funding position was increasingly under pressure.

Geneva yesterday said the ratings downgrade and negative comments by S&P, along with a lack of confidence in the sector, had hurt the company's investment position.
Today Riley said the company had called for the moratorium in the interests of all its investors.

"What this will do is allow Geneva to stabilise its investment position, focus on negotiating a significant debt and equity transaction that would secure the long term future of the company."

The company had needed to "act quickly and prudently in the interests of our investors", Riley told Radio New Zealand.

"We're extremely confident that the period of the moratorium will be enough for us to put the company back into that stable position, secure that significant debt and equity transaction and really secure the long term future of the company."

Yesterday Riley said Geneva remained profitable with strong operating cash flows and a "significant" excess of assets over liabilities.

The company was also confident of maintaining its $50 million line of credit from BOS, which S&P has said was crucial to Geneva's future.

Last week, Geneva, which mainly offers hire purchase for consumer goods and cars, personal and small business loans, said it had cut back the number of car dealers it dealt with, and admitted it was not lending at normal levels.

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 most recent prospectus showed that 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.

Geneva is owned by Finance Investments Holdings, which in turn is half owned by three prominent Auckland property developers, Peter Francis, Gary Hitchcock and Nigel Burton. The three own preference shares, which may rank above ordinary shares, equivalent to another 35% of the total shareholding.

Ten finance companies have collapsed in the past 18 months, including seven this year as the main local effect of a global credit crunch.

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