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Geneva given D rating and proposes moratorium

Finance company Geneva Finance says it is no longer taking deposits, and will ask investors for a moratorium on all investments until April 2008.

Tuesday, 16 October 2007
A lack of confidence in the sector, and a ratings downgrade and negative comments by credit rating agency Standard & Poor's, had hurt the company's investment position, said Geneva chief executive Shaun Riley.

"The board and management of Geneva, in consultation with our trustee, have decided to act prudently by requesting the moratorium," Riley said.

"This will allow the company the time to stabilise its investment position, and focus on negotiating a significant debt and equity transaction that would secure the long term future of the company and protects all investors' interests."

The company was confident of maintaining its $50 million line of credit from the Royal Bank of Scotland, which S&P has said was crucial to Geneva's future.

Last week, Geneva said it had cut back the number of car dealers it dealt with, and admitted it was not lending at normal levels.

Riley said the company remained profitable with strong operating cash flows and a "significant" excess of assets over liabilities.

The company had told the Securities Commission it was no longer taking deposits. All investments made since Thursday have been placed in trust and will be returned to investors this week.

Geneva planned to extend all classes of investment maturities by six months, pay interest on all investments monthly during the period, and continue to maintain business operations, trading and lending.

Geneva, which mainly offers hire purchase for consumer goods and cars, personal and small business loans, will hold a meeting for investors to vote on its proposal.

The company would be monitored by a third party on behalf of the trustee, Covenant Trustee, to ensure compliance with the terms of the moratorium.

According to KPMG's survey of financial institutions, Geneva was the 32nd-ranked finance company in 2006 by size with assets of $141m and debt securities of $127m plus subordinated debt of $9.8m.

Its most recent prospectus showed that at March 31, it had secured stock of $17.5m, debentures of $112.7m, and unsecured deposits of $8m. Loans had grown to $171.2m from $141.6m in 2006.

Geneva is owned by Finance Investments Holdings, which in turn is half owned by three prominent Auckland property developers, Peter Francis, Gary Hitchcock and Nigel Burton. The three own preference shares, which may rank above ordinary shares, equivalent to another 35 percent of the total shareholding.

Ten finance companies have collapsed in the past 18 months, including seven this year as the main local effect of a global credit crunch.

After Geneva's statement, Standard & Poor's said it had lowered its ratings to the default-level D from B-, and lowered the rating on sister company Quest Insurance Group to CC with a negative outlook from CCC+.

S&P also warned that if investors rejected Geneva's proposals, the trustee was likely to proceed with enforcement actions.

"A payment default has occurred with Geneva's nonpayment of debenture redemptions upon the due date. Under these circumstances, the only available course of action to Standard & Poor's is to lower the long-term counterparty credit rating on Geneva to 'D'," Standard & Poor's director Gavin Gunning said.

However, the ratings may improve it investors vote in favour of Geneva's proposals.

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