South Canterbury rating cut to CreditWatch Negative by S&P on 'risk profile'

Monday 21st September 2009

South Canterbury Finance Ltd. had its credit rating placed on Creditwatch Negative by Standard & Poor’s, which said the finance company’s risk profile has deteriorated since the rating was cut to speculative grade last month.

“Our concerns center on increasing pressure on liquidity; still-weak asset quality; and governance matters including, but not limited to, related party exposures,” said S&P credit analyst Derryl D’silva, in a statement emailed to BusinessWire.

South Canterbury, which is owned by Allan Hubbard’s Southbury Group, halted allotments under its debenture programme on August 21 and said it will issue a new prospectus pending its capital review and the extension of the Deposit Guarantee Scheme. Funds received after August 20 are being held in trust, it said last week.

D’silva said with no debenture prospectus, South Canterbury’s funding flexibility and liquidity “are undermined at the ‘BB+’ rating level, at least in the short term.” Without access to the funds held in trust, pressure is increased on the firm’s funding and liquidity, he said.

Also, investors in the firm’s US$100 million U.S. private placement facility “continue to review their funding support” after the rating was cut from the lowest investment grade level of BBB-, which gave them the right to demand repayment within three months.

If repayment was demanded, it has “the potential to significantly exacerbate liquidity concerns and cause a downward revision of the rating by multiple notches, potentially into the ‘B’ rating category,” D’silva said.

A new prospectus is to be registered after the release of the company’s audited accounts around Sept. 30. Hubbard last month hired Forsyth Barr and Harmos Horton Lusk to advise on restructuring the group.

Hubbard injected $40 million of new capital into South Canterbury in July to strengthen its balance sheet against write-downs on the value of its property loans. In a separate statement today, Hubbard said the change in the ratings status “should quickly be resolved as it is a matter of timing arising principally from a delay in finalising the company’s audited accounts.”

A review and audit of the accounts will be completed by the end of this month, enabling the new prospectus to be registered, he said.

“Since the global financial crisis, there is less tolerance shown by the rating agency over matters such as this,” Hubbard said.

The company’s trustee has been kept informed on these audit matters as well as progress regarding the restructuring and capital-raising process underway, he said.

Businesswire.co.nz

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