Geneva Finance cuts back on lending, but denies it has stopped

By NZPA

Tuesday 9th October 2007

Geneva Finance today denied a report it had ceased lending from yesterday but said it had cut back and had rationalised the number of car dealers it dealt with.

The New Zealand Herald today reported it understood Geneva had stopped new lending in a temporary move to ensure liquidity.

Geneva chief executive Shaun Riley told NZPA yesterday it would stop offering financing deals to "rats and mice" car dealers and would focus on loyal dealers that give the company the majority of its volume.

"This is a time for the finance industry to be prudent," he said.

"It's no secret that we are not lending at what I'd call a normal level. We are managing our positions in line with the changes in the market."

Auckland-based Clegg & Co last week became the tenth finance company to collapse in the past 18 months and the seventh this year as the main local effect of a global credit crunch.

A month ago, international credit rating agency 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.

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 have investment grade ratings with stable outlooks.

Riley said Geneva had also been cutting costs "to reshape our business so it is viable moving forward".

He said Geneva had felt little effect from the impending downgrade from S&P.

Investors were still reinvesting with the company, Riley said, although he declined to say at what rate, citing confidentiality.

Many finance companies have revealed their reinvestment rate -- where investors decide to reinvest mature loans -- slump drastically due to publicity about collapses in the sector.

Riley admitted the reinvestment rate was well down on a year ago but said Geneva was getting "good support from a good number of its investors".

"Reinvestment is down, lending is down -- the two balance each other out."

He said there were no problems with a $50 million credit line from the Royal Bank of Scotland, that S&P said was crucial to its future.

"We are meeting all our covenants and are still able to draw down on that facility."

Geneva's trustee, Covenant Trustees, has required weekly reports from Geneva, as it has from all finance companies it is trustee to during the current crisis.

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.

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