SCF cut deeper into junk; trust deed waiver looms

SCF cut deeper into junk as trust deed waiver deadline looms

By Paul McBeth

Aug. 20 (BusinessDesk) – South Canterbury Finance Ltd., the embattled financier whose owner Allan Hubbard is under statutory management, has been cut deeper into junk as the deadline looms on its plan to bring in a new investor.

SCF’s credit rating was cut two notches to CC from B-, giving it a 50% chance of defaulting over the next five years, by rating agency Standard & Poor’s. The rating is one notch above the lowest D-rating, which occurs when a company defaults on a payment. SCF is still on CreditWatch negative. The financier has until the end of the month to bring on a new investor as part of its recapitalisation plan, before it breaches its trust deed waiver with trustee Trustee Executors.

“SCF’s substantially diminished cash balance – which is now at a level that in our view may see the company seek additional liquidity support – reflects a combination of loan repayment delays and weaker-than-anticipated reinvestment experience and new debenture inflows,” said credit analyst Peter Sikora. “This rating action is despite SCF having some success in managing forward maturities over the past few months.”

SCF has been struggling to bring in new money and recover cash from bad debts after it hit the wall last year when the dodgy property loans started weighing on its performance. Since then, Hubbard stepped down as chairman and had his business interests put into statutory management over the dealings of one of his investment vehicles, while corporate fix-it man, Sandy Maier, was installed as chief executive to turn the financier around.

Maier said good progress was being made on the recapitalisation plan, and the company is targeting Aug. 31 to make an announcement.

“There is confidence amongst all parties involved in the recapitalisation process that a favourable outcome can be achieved and that, following the completion of that process, South Canterbury Finance can continue to operate as an active support of small and medium business enterprises,” Maier said in a statement. “South Canterbury Finance is comfortable with its liquidity position and continues to meet all obligations as they fall due.”

The lender is covered by the government’s retail deposit guarantee and was accepted into the extension until the end of next year.

The government expects to pay out $934 million under the guarantee, according to its financial statement for the 11 months through May, including a $47 million liability for the cost of payments to investors in guaranteed entities. That was up from $880 million provided for in the 10 months through April.

SCF withdrew its prospectus, and will register an amendment as soon as possible.

(BusinessDesk)

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