KEY POINTS:
The finance companies that get through the present cash crunch are likely to have at least two or three of what we call "the five survivability factors".
I believe the factors are:
Diversified lending. This is when the finance company lends much wider than through one type of
loan to one sector. Finance companies wholly exposed to residential and resort property development are most at risk at the moment. We categorise three types of lending or lending in three different sectors as diversified.
Diversified funding. This is when a finance company is funded wider than through retail debenture investments. We categorise three different types of debt funding as diversified.
A large local bank funding facility. This is the capacity to call on plenty of cash from a large local bank, such as ASB or BNZ, through a pre-arranged overdraft-type facility for when things get tough.
A strong corporate, individual or family shareholder. This company, individual or family should be wealthy enough to quickly inject enough equity capital if and when needed.
An investment-grade credit rating. This is a Standard & Poor's rating of BBB- or better.
Companies with all five factors
UDC: Owned by ANZ and lends to businesses buying vehicles and equipment across industries and most parts of the country. It is as safe as ANZ. It has an AA credit rating from Standard & Poor's (S&P).
Marac Finance: Owned by NZX-listed Pyne Gould Corp and has loans ranging across commercial finance, and property and personal lending. Marac has $480 million of bank funding, is issuing more than $100m of bonds and has securitised loans, as well as debenture funding. Marac has a BBB- S&P credit rating.
South Canterbury Finance: Controlled by South Island businessman Allan Hubbard and his Southbury Group, which owns dairy farming and other assets. South Canterbury has a loan book diversified across residential property, rural lending and personal lending and across most of the country. Its funding is diversified across several areas apart from debenture funding, including an unused $150m bank funding line from Commonwealth Bank of Australia and BNZ. Most of its lending is in the South Island.
Company with four factors
PGG Wrightson Finance: Owned by NZX-listed PGG Wrightson and lends across the rural sector. It has issued bonds and has a $100m credit line from ASB to complement debenture funding. It has no investment-grade credit rating.
Companies with three factors
Fisher & Paykel Finance: Lends across consumer and equipment finance sectors and has a consortium of four banks, which provide a funding line. It is owned by NZX-listed Fisher & Paykel Appliances. It does not have an investment grade credit rating.
Speirs Finance: Palmerston North-based, owned by Speirs Foods and has diversified funding across a $150m securitisation facility backed by BNZ. It is focused on asset finance but its loans are spread across industries and regions. It has no credit rating for debentures but its securitisation facility has an A1 rating from S&P.
NZF Money: Part of the NZF group that includes Mike Pero Mortgages, Finance Direct and NZ Mortgage Finance. It lends to residential property owners and investors. It has a bank funding line from Westpac, has securitised loans and raises cash through debentures. It has diversified funding and its wealthy Huljich family owner can inject capital if needed.
Companies with two factors
Allied Nationwide Finance: Has diversified commercial, property and rural lending. It is owned by Taranaki-based and NZX-listed Allied Farmers Group, but depends on debenture funding, has not disclosed a bank funding line and has no credit rating.
Equitable Mortgages: Focused on property lending but unlike other property finance companies has first mortgages on commercial lending, rather than second mortgages on property developments. It has a BB+ S&P credit rating, one notch below investment grade. It has the backing of the rich-list Spencer family, which has assets here and overseas for backing. It has a $125m medium-term facility to supplement debenture funding.
Company with one factor Mascot
Finance: Timaru- and Christchurch-based, it has a diversified lending book covering property, commercial asset finance and personal finance, although more than 50 per cent of its book is in property. It is owned by businessman Ken Lane and largely depends on retail debentures. It has no large bank funding line.
Companies with no factors
Hanover Finance: Backed by rich-listers Eric Watson and Mark Hotchin, who have shown no signs of injecting capital in the past year. The owners have withdrawn $99.8m in dividends from Hanover Finance in the past two years. Hanover is exposed to real estate development and relies almost completely on debenture funding. It has no local bank funding line and has used vulture fund Fortress Credit for funding. Hanover has a BB+ long-term credit rating from Fitch, which is not considered investment grade. Hanover has a B short-term Fitch rating, which relates to obligations of less than 12 months and under the ratings indicates a minimal capacity for timely payment of commitments.
Strategic Finance: Exposed to residential property developers, has a (not strong) corporate backer in Allco HIT, has no local bank funding line and is exposed to retail debenture funding. Strategic has used up all its $75m funding line from Halifax Bank of Scotland International. It has more than four times as much maturing from loans in the next three months than cash needed to repay debentures maturing over that period. More than 80 per cent of its loans are capitalising loans and it is in the process of looking for a strong corporate backer.
Bernard Hickey is the managing editor of www.interest.co.nz, a website for investors and borrowers wanting free and independent news and information about interest rates, banks, finance companies and the economy.
