Geneva Finance to lose its wholesale funding

Geneva Finance is facing an uncertain future after its wholesale funder Bank of Scotland International indicated it is unlikely to extend its facility with the listed finance company.

Thursday, 28 January 2010

by Paul McBeth

Geneva Finance was the first finance company to go into a moratorium and since then has listed on the NZX and repaid debenture holders 50% of their principal.

Managing director David O'Connell said "funding is now the key issue" for the company in its report for the six months through September, after BOS International said the current $35 million facility is unlikely to be "extended in full" beyond April 30.

O'Connell said while the discussions with its lender are "commercially sensitive," it is appropriate to disclose that the facility as being due in six months. As at September 30, Geneva had drawn down some $26.8 million from the facility.

"Successfully resolving the funding issues creates the opportunity to significantly enhance shareholder value," O'Connell said in his report. "Changes to financial markets on both the global stage and within New Zealand have made it difficult to secure long-term funding."

The paring back of the facility put Geneva into a technical breach of its covenant with BOS, as a new strategy of reduced lending cuts a deferred tax asset by $3.2 million. The breach and funding concerns prompted auditor Staples Rodway to flag a fundamental uncertainty over Geneva's future as a going concern.

Geneva Finance has been one of the more successful finance companies to enter into a moratorium arrangement when the property development market fell over, repaying debenture and note holders some $64.4 million since November 2007.

The company posted a first-half loss of $2.6 million, compared to a $7.7 million loss a year earlier, and has largely completed its shift away from high interest rate, high risk products.

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