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Geneva gets a little ratings upgrade

Standard & Poor's has raised GFNZ Group's credit rating as promised, but only to one notch below the rating it held until March 18.

Sunday, 1 May 2011

by Jenny Ruth

S&P now rates GFNZ, formerly Geneva Finance, "CCC-" and says the outlook is negative. GFNZ's sister company Quest Insurance Group holds the same rating and outlook.

That's an upgrade from the "SD," or selective default rating S&P previously awarded it because of its debt-for-equity swap, the alternative to which was receivership.

Holders of $4.4 million of subordinated notes voted on March 31 to covert every $1,000 face value of their notes to 20,000 shares at an assumed five cents per share issue price. The noteholders were over a barrel because if GFNZ had gone into receivership, they would have received nothing.

The NZX-listed GFNZ shares ended last week at 1.6 cents.

Before March 18, S&P had rated the company "CCC."

S&P analyst Peter Sikora says the debt-for-equity swap boosted GFNZ's capital resources by about $5 million and improved its prospects of meeting regulatory capital adequacy requirements and cashflow needs in the near term.

"In our view, the debt-for-equity swap is also supportive to GFNZ's earnings profile and will result in an interest saving of about $588,000 for the fiscal year to March 2012," Sikora says.

However, the company still faces ongoing challenges.

"GFNZ is sufficiently, although delicately, placed to meet its debt obligations over the next 12 months. The rating could be lowered if this position weakens or if, in our view, GFNZ was unable to demonstrate sufficient business and financial success to meet its obligations or support its future business viability."

To revert to a stable outlook, GFNZ would need to establish a track record of meeting the challenges which underpin its current negative outlook, Sikora says.

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