Finance company sector woes impact Geneva's S&P rating

Standard and Poor's says it has placed Geneva Finance's B+ credit rating on CreditWatch with negative implications.

Tuesday, 11 September 2007

"We believe that there is a possibility that current financial market disruptions may lead to Geneva being unable to manage liquidity and funding pressures affecting the New Zealand finance company industry."

Consequently, there is a risk of Geneva's credit profile declining in the near term. Conversely, continuing support from liquidity providers and debenture renewals may sustain Geneva through the current market stress, and return the company to its position prior to the market disruption.

"Negative publicity caused by these failures has reduced investor confidence in Geneva and other finance companies, and debenture retention rates have fallen below historical levels," D'silva says.

This caused Geneva to increasingly rely on its $50 million facility provided by BOS International. Geneva's ability to continue to draw down on this facility and more generally maintain support from its bankers are the most important rating factors in the short term.

Standard & Poor's notes that Geneva continues to have access to this facility.

The CreditWatch negative placements also reflect the possibility that the ratings could be lowered if cash flow management difficulties exacerbate in the short term as a result of continued market stress. This is most likely to manifest if the company's access to the facility from BOS is withdrawn, or if generally its bankers' confidence is not retained. Additionally, should Geneva's debenture-retention rates continue to remain low or reduce further, it will exert downward rating pressure.

Standard & Poor's says it will monitor Geneva's ability to manage asset quality within expectations including the ability to realise security wherever applicable.

The rating outlook may be revised to stable if Geneva is able to contend with these challenges by demonstrating a more sustainable liquidity position, which includes continued access to its liquidity facility from its bankers, the ability to secure additional funding facilities, a sustainable improvement in retention rates, and maintaining operating cash flows.

Standard & Poor's acknowledges that Geneva had satisfactorily managed liquidity pressures caused by finance company failures in 2006, and that management is proactively seeking to manage current market pressures.

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