Standard & Poor's has maintained its BB (credit watch negative) rating on South Canterbury Finance's long term debt pending greater clarity of information.The credit rating agency said while South Canterbury has made “some progress” since
Standard & Poor’s has maintained its BB (credit watch negative) rating on South Canterbury Finance’s long term debt pending greater clarity of information.
The credit rating agency said while South Canterbury has made “some progress” since March 2, it is still exposed to material debenture-refinancing pressures leading into October 2010.
South Canterbury has a significant level of debentures maturing in October.
“We expect SCF’s ability to deal with this liquidity and refinancing risk to become clearer by the end of May 2010,” Standard & Poor’s credit analyst Derryl D’silva said.
“At this time, we’ll be able to observe and assess the company’s success in further building balance sheet liquidity and reducing its refinancing requirements leading into October 2010. We also believe SCF will continue to pursue other options such as asset sales, and recapitalisation to improve its overall financial strength.”
South Canterbury chief executive Sandy Maier said he was pleased that S&P made mention of the company’s progress.
“Having built up liquidity in recent months we are confident the measures are in train to ensure we maintain our record of making all interest payments and redemptions as they fall due,” Mr Maier said in a statement.
S&P’s Mr D’silva noted that South Canterbury’s cause had been helped by securing approval to stay in the extended Retail Government Guarantee Scheme, and management’s efforts to “strengthen broker and investor support”.
Cash is King
S&P said South Canterbury had increased its cash on balance sheet to about $NZ100 million. This was on the back of an average reinvestment rate of 43% over the last five months, new debenture inflows, and loan repayments.
Additionally, short-term liquidity will benefit from a capital injection of $37.5 million as of end-May 2010, S&P said.
South Canterbury’s ratings could be taken off credit watch (negative) and affirmed with a negative outlook within a month, provided liquidity concerns moderate such that:
• The company's cash balance builds to about $150 million at the end of May 2010 and we feel that this will likely improve to about $200 million in the near term, while meeting ongoing liquidity needs.
• There is evidence of sustainable improvement in the monthly debenture reinvestment rate.
• There is evidence of good and sustainable new debenture inflows.
• The $350 million debenture maturity in October 2010 was reduced each month to get closer to SCF’s average refinancing requirement of about $100 million.
• Execution of other options such as asset sales, recapitalization, and impaired loan recoveries continue along with efforts to improve liquidity so as to restore SCF’s overall financial strength to a level that compares with the ‘BB’ rating and peers.
• No new credit concerns emerge.
Conversely, the rating will be lowered—potentially by more than one notch—and will remain on CreditWatch Negative if:
• Some or all of the above do not eventuate.
• It was forced to rely on asset sales to meet any ongoing liquidity shortfalls. In our view, a company rated ‘BB’ cannot rely on asset sales to meet short-term liquidity needs.
