Standard & Poor's issues warning on Geneva Finance

By NZPA

Tuesday 11th September 2007

International credit rating company Standard & Poor's Ratings Services today flagged a credit downgrade for finance company Geneva Finance and its sister company Quest Insurance, saying Geneva may be unable to manage its liquidity.

S&P said its action reflected increasing pressure on Geneva's liquidity and funding position following the rash of New Zealand finance company failures recently.

"Conversely, continuing support from liquidity providers and debenture renewals may sustain Geneva through the current market stress, and return the company to its position prior to the market disruption," S&P said.

Geneva is owned by Financial Investment Holdings, controlled by property developer Peter Francis, who was chief executive of Chase Corporation, one of the most spectacular failures in the 1987 sharemarket crash.

"We believe that there is a possibility that current financial market disruptions may lead to Geneva being unable to manage liquidity and funding pressures affecting the New Zealand finance company industry," S&P credit analyst Derryl D'silva said in a statement.

"Consequently, there is a risk of Geneva's credit profile declining in the near term."

D'silva said negative publicity caused by these failures had reduced investor confidence in Geneva and other finance companies, and debenture retention rates had fallen below historical levels.

This caused Geneva to increasingly rely on a $50 million facility provided by BOS International (Australia) Ltd (Bostial).

"Geneva's ability to continue to draw down on this facility and more generally maintain support from its bankers are the most important rating factors in the short-term," he said, adding that S&P had noted Geneva continued to have access to that facility.

He said credit warning also reflected the possibility that Geneva's ratings could be lowered if cash flow management difficulties exacerbate in the short-term as a result of continued market stress.

"This is most likely to manifest if the company's access to the facility from Bosial is withdrawn, or if generally its bankers' confidence is not retained.

"Additionally, should Geneva's debenture-retention rates continue to remain low or reduce further, it will exert downward rating pressure."

D'Silva said S&P would monitor Geneva's ability to manage asset quality within expectations, including the ability to realise security wherever applicable.

"The rating outlook may be revised to stable if Geneva is able to contend with these challenges by demonstrating a more sustainable liquidity position, which includes continued access to its liquidity facility from its bankers, the ability to secure additional funding facilities, a sustainable improvement in retention rates, and maintaining operating cash flows.

S&P noted Geneva had satisfactorily managed liquidity pressures caused by finance company failures in 2006, and said its management was proactively seeking to manage market pressures. Geneva has a "B-plus"long-term counterparty credit rating.

When Chase collapsed in 1989 it was then the largest loss in New Zealand corporate history.

Geneva general manager Glenn Walker was not immediately available for comment. Nor was Francis.

According to KPMG's survey of financial institutions, Geneva was the 32nd-ranked finance company in New Zealand in 2006 by size. It had assets of $141 million and debt securities of $117m plus subordinated debt of 9.8m. It had a net profit after tax of $3.8m in 2006.

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".

Francis was cited in this year's NBR Rich List as being worth $50m.

"The Francis family is back on the Stock Exchange in its own right with the launch during the past year of the Kermadec Property Fund," NBR wrote.

The listed property trust was floated by Francis' sons, Mark and Chris.

In 1989, when Chase Corp, which at its peak in 1987 was worth $1.3 billion and was one of the top ten listed companies, was forced into liquidation, it reported what was then New Zealand's largest corporate loss of $841m.

Francis and Chase founder Colin Reynolds are major shareholders in Symphony Investments, which owns half the management company of listed ING Property Trust. Robin Congreve, another Rich List member and major player of the 1980s, is also a major shareholder.

ING has a right of first refusal with Symphony and the Francis family private property flagship, Augusta Group, to buy any commercial development the three Symphony shareholders are selling.

Francis is also co-owner of the Wairakei Golf Course with yet another 1980s player and Rich List member, Trevor Farmer.

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