Rounding off a bad day for finance companies, Standard & Poor's has just chopped South Canterbury Finance's credit rating to CC with a negative outlook – a savage two notches lower than the previous B- assessment.According to S&P's definitio
Rounding off a bad day for finance companies, Standard & Poor’s has just chopped South Canterbury Finance’s credit rating to CC with a negative outlook – a savage two notches lower than the previous B- assessment.
According to S&P's definitions, a CC rating is "currently highly vulnerable."
South Canterbury, which has a self imposed deadline of August 31 to raise capital, has had ongoing liquidity issues since September last year.
Chief executive Sandy Maier said “good progress” was being made on the recapitalisation of the business which would enable the company to “continue to operate as an active supporter of small and medium business enterprises.”
"This will be of far more significance for all stakeholders and we would anticipate that Standard & Poor's will want to undertake a review of the company's credit rating soon after."
"In the meantime, South Canterbury Finance is comfortable with its liquidity position and continues to meet all obligations as they fall due."
South Canterbury Finance is covered by the government's deposit scheme until December 2011.
The CC credit rating is the same level as Allied Nationwide Finance, which collapsed into receivership today.
Here is the full statement from S&P:
“The rating action reflects a material weakening of SCF's liquidity and cash position beyond what we anticipated when we lowered the issuer credit ratings to 'B-/C' and placed the ratings on CreditWatch Negative on June 21, 2010,” Standard & Poor's credit analyst Peter Sikora said. “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. This rating action is despite SCF having some success in managing forward maturities over the past few months.”
"We noted on June 21, 2010, that the rating could be lowered if the likelihood of success in recapitalization efforts was materially delayed or compromised or if new credit concerns emerged. The weaker-than-expected cash and liquidity position and the lack of progress in recapitalization efforts--as the Aug. 31, 2010, covenant breach waiver deadline approaches--has compromised SCF's business viability without the successful progression of recapitalization plans over the next few weeks. Even if recapitalization plans are progressed, we understand that SCF will also require trustee approval and support to progress and execute recapitalization plans after Aug. 31, 2010, while it is still in breach of trust deed covenants. While the company is pursuing a range of recapitalization options, benefits from these initiatives would only be recognized in the company’s ratings once they were sufficiently progressed and a comprehensive assessment was done.
"A CreditWatch Negative listing by Standard & Poor's implies a one-in-two likelihood that the rating may be lowered within the next three months. The rating will be lowered to 'D' if SCF does not meet any of its repayment obligations in full and on time. The 'CC/C' ratings recognize that there is a strong possibility that SCF could default on its obligations within six months. The most likely scenario for default for SCF is an inability to progress recapitalization plans before the expiry of its trust deed waiver on Aug. 31, 2010.
"We may stabilize SCF's rating and review the CreditWatch if the company successfully executes the recapitalization of its operations and receives the necessary support from all stakeholders implicated in any such recapitalization. This would help remedy SCF's trust deed breach and help strengthen the company's current weak liquidity position."
