Geneva raises $30m from overseas bank

Amid signs of easing demand for finance company debentures after recent failures in the sector, Geneva Finance has become the second company this week to say it will source funds from an overseas bank.

Geneva has secured a $30 million wholesale banking facility from the Bank of Scotland International - one of the banks Dominion Finance said on Monday was to provide it with a $90 million credit line.

The recent receiverships of National Finance 2000, Provincial Finance and problems at Western Bay Finance have seen some companies in the sector face difficulties in raising funds from retail investors through debenture stock.

Publisher of interest.co.nz website David Chaston said that was borne out by recent anecdotal evidence.

"It's dramatically slowed in terms of new flows in. It was almost at a stop there for a while."

Reinvestment rates, however, had been good at most companies - "not as high as a year ago but not far off".

Geneva chief executive Dennis Kelly said that reinvestment of existing debenture stock was running at "good solid levels".

"Having said that, it would be safe to say there's a degree of nervousness in the market."

Nevertheless, emerging concerns about the sector had not driven the decision to secure the bank funding.

The company, which has a respectable B+ rating from Standard & Poor's, was advised a year ago by the international ratings agency that it should secure other sources of funding.

In fact, Kelly said S&P had identified reliance on debenture stock funding as "a point of weakness" for the entire New Zealand finance sector.

The funding from the Bank of Scotland had taken the best part of a year to secure and the timing was not related to recent events.

Kelly would not disclose the interest rate on Geneva's bank line which was secured against the same assets as the company's debenture stock and was equally ranked.

Geneva Finance has a loan book of $120 million and a similar amount in debenture stock, most issued directly to investors.

Its business consists of personal loans and hire purchase and motor vehicle finance, the areas which commentators warn face the greatest risk as the economy slows.

Kelly said Geneva did not have high levels of concern about its loan book as it dealt directly with borrowers and was better able to assess risk.

Chaston said Geneva's securing of the Bank of Scotland funding was "probably a sign of good management". However, while wholesale bank lines were a more efficient way to get money, with lower interest rates than those paid to retail investors, they were "fairweather funding".