South Canterbury bonds trade up to 40% yields ahead of extended guarantee

Friday 19th March 2010

South Canterbury Finance’s 2012 bonds have changed hands in a flurry this week at yields ranging between 30% and 40% as investors demand more of a premium to hold debt that would fall outside the extended government guarantee.

Bonds of $1.2 million face amount changed hands on Wednesday, compared to values of around $100,000 in previous weeks. Total turnover this week was $1.47 million from $338,000 last week.

South Canterbury’s June 2011 bonds, which fall outside the existing guarantee scheme but would be within the extended scheme if the company qualified, are yielding around 25%. The bonds maturing in October this year – well within the guarantee, are yielding 8.25%.

“Clearly there’s some concern in the marketplace about whether they are going to qualify,” said David Speight, a director at Direct Broking in Wellington.

That’s “evidenced by the increase in yields that run outside the guarantee.” South Canterbury’s credit rating was cut to BB this month by Standard & Poor’s, even after owner Allan Hubbard moved to shore up its finances by selling two profitable businesses into the company from his private investment arm Southbury Corp.

At the same time, S&P put the rating on CreditWatch Negative, meaning there’s scope for further downgrades.

South Canterbury’s first-half net loss was $154.9 million, reflecting a provision for losses on impaired or non-performing assets of $180.3 million.

S&P credit analyst Derryl D’silva said if not for Hubbard’s support, the credit rating would have been cut by more than one notch.

That would have pushed South Canterbury outside the reach of the extended guarantee scheme, which requires a minimum BB rating.

The finance company has some $1.1 billion of debt to roll over this year and the new equity will bolster its balance sheet.

Businesswire.co.nz

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