Businessman Allan Hubbard's move to shore up the finances of South Canterbury Finance haven't been enough to protect the firm's credit rating, which was cut one notch to BB by Standard & Poor's.
The rating was also placed on CreditWatch Negative, meaning there's scope for further downgrades. South Canterbury this week reported its first-half net loss ballooned to $154.9 million, reflecting a provision for losses on impaired or non-performing assets of
$180.3 million. Hubbard's Southbury Corp. is selling two profitable businesses to South Canterbury, mainly in exchange for shares, to bolster its financial profile.
The company's asset quality "has deteriorated to a level that is not consistent with the BB+ rating level," S&P credit analyst Derryl D'silva said. Still, in the absence of strong shareholder support, the credit rating would have been cut by more than one notch, he said.
Liquidity at South Canterbury is "currently weaker than many nonbank deposit takers in the BB rating category" and a further deterioration is likely to lead to further cuts to the credit rating, D'silva said.
South Canterbury chief executive Sandy Maier told Radio NZ that investors shouldn't be overly fazed by the rating cut as the firm was party to the Crown guarantee.
S&P said the rating could be taken off CreditWatch Negative "in a matter of months" provided liquidity improved and the firm further strengthened its capital base.
Hubbard this week agreed to sell his profitable Helicopters (NZ) and a majority stake in Scales Corp. to the firm for $152.5 million of new shares to Southbury Corp. and $10 million in cash, the company said in a statement. The finance company has some $1.1 billion of debt to roll over this year and the new equity will bolster its balance sheet.
The unprofitable finance company has obtained a waiver from Trustees Executors for the transactions, which would have breached financial covenants on single party exposure and the level of total equity to shareholders funds. The waiver will be reviewed with South Canterbury's full-year financial statements.
The company said it is getting inflows of funds in excess of redemptions and is working with the Treasury on its application for acceptance into the extended retail deposit guarantee scheme.
Helicopters (NZ) had net income of $16.2 million in the year ended June 30, 2009, while Scales had earnings of $29.8 million.