GFL
23/08/2012 15:16
CREDIT
REL: 1516 HRS GFNZ Group Limited
CREDIT: GFL: GFNZ Limited S&P Rating Report 22 August 2012
Research Update:
Ratings On GFNZ Group Ltd. Lowered
To 'CC' On Funding And Liquidity
Uncertainties; Off CreditWatch;
Outlook Negative
Primary Credit Analyst:
Harry Hu, CFA, Sydney (61) 2-9255-9859; [email protected]
Secondary Credit Analyst:
Nico N DeLange, Sydney (61) 2-9255-9887; [email protected]
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Related Criteria And Research
Ratings List
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 22, 2012 1
1002685 | 301771420
Research Update:
Ratings On GFNZ Group Ltd. Lowered To 'CC' On Funding And Liquidity
Uncertainties; Off CreditWatch; Outlook Negative
Overview
o?On Aug. 6, 2012, New Zealand finance company GFNZ Group Ltd. (GFNZ)
received less-than-anticipated new funding to shore up its liquidity
position.
o?Although the finance company was able to repay half of its September
scheduled debt repayment obligations on Aug. 17, 2012, a delay or reduction
in the level of additional new external funding secured by GFNZ through
August and September 2012 could result in GFNZ defaulting on its debt
obligations.
o?GFNZ has experienced ongoing delays around a range of funding initiatives
(which have been discounted in our liquidity analysis for the finance
company), and prevailing uncertainty around receipt of new external funding
bring into question GFNZ's ability to meet it liquidity needs through the
period to and beyond March 2013.
o?Over the next few months, GFNZ will remain highly reliant on securing new
external funding to meet its liability obligations and receipt of some new
funding is not expected to support upward rating prospects.
Rating Action
On Aug. 22, 2012, Standard & Poor's Rating Services lowered its long-term
issuer credit ratings on New Zealand finance company GFNZ Group Ltd.
(GFNZ)and GFNZ's wholly owned insurance subsidiary, Quest Insurance Group
Ltd., to 'CC' from 'CCC-'. The ratings are removed from CreditWatch with
negative implications, where they were placed on June 4, 2012. The outlook is
negative.
Rationale
The rating action reflects Standard & Poor's heightened concerns that GFNZ
could default in the next few months if it is unsuccessful in securing new
additional external funding, with the possibility of default extending
through the period to March 2013 if the receipt of proceeds from planned
funding initiatives is delayed.
GFNZ has experienced some delays in securing planned new external funding
which has reduced our confidence that sufficient funds will be received
before the end of September 2012 for it to meet scheduled debt obligation
payments.
GFNZ's ability to meet its scheduled repayment on its bank facility and
debentures is heavily reliant on successful progression of the finance
company's efforts to secure funds from other funding initiatives, which might
include a planned rights issue and the potential issuance of new debentures.
GFNZ announced on Aug. 14, 2012, that the four-for-one rights
issue--generating NZ$1.4 million in net proceeds--has been deferred to at
least October 2012, which adds to heightened sensitivity around the finance
company's ability to meet its debt obligations in September 2012. Also
deferred are other funding initiatives that include the issuance of new
debentures (GFNZ had no debenture prospectus on issue since June 2011).
Although debenture funding secured in early months was only anticipated to be
small amounts, delay on this more sustainable source of funding further
hampers our view of GFNZ's ability to accumulate sufficient funds to meet
future repayment needs and support its business prospects.
In our opinion, GFNZ management's key focus for the next 12 months will
continue to be on funding and liquidity--the factor that underpins our rating
rationale for GFNZ. Notwithstanding this, we recognize there has been an
improvement in year-on-year performance despite a reported after-tax loss of
NZ$1.6 million at March 2012 (compared to a loss of NZ$8.6 million for fiscal
2011). This improvement is driven by good performance on the new ledger
business and improving credit loss stability on the old ledger business. At
June 30, 2012, new ledger loans represent 44% of the total loan portfolio,
with 89% of loan receivables making timely payments. A challenge for GFNZ is
its ability to grow the new ledger business under constraining funding and
liquidity factors--again highlighting the importance of this to the rating.
As previously noted, should GFNZ be able to secure significant and stable
funding
sources over the longer term, there is scope to better recognize any
improvements in overall loan quality.
Liquidity
GFNZ's liquidity position is weak and delicately balanced, with a high risk
that the finance company could have insufficient funds to meet its debt
obligations through the period to March 2013.
GFNZ has prepaid half of the next scheduled repayment on Aug. 17, 2012. The
repayment of the other half, consisting of NZ$1.21 million in repayments to
debenture holders and NZ $1.25 million in bank-facility reduction, is, in our
view, significantly reliant on GFNZ receiving new external funding.
GFNZ has to meet NZ$2.4 million in debenture repayments and a NZ$ 2.5 million
bank facility reduction every six months to March 2014. Consequently, both
the debenture-holder repayment and bank-facility reduction will double until
these debts are fully satisfied by March 2015. This liquidity risk could be
partially mitigated if GFNZ was successful in securing new funding. Liquidity
pressure could also mitigate liquidity pressures by cutting back new lending;
however, we understand this lever would only be used as last resort, and
exercised sufficiently prior to the repayment date to accumulate sufficient
funds.
Research Update: Ratings On GFNZ Group Ltd. Lowered To 'CC' On Funding And
Liquidity Uncertainties; Off
CreditWatch; Outlook Negative
Following this, GFNZ would need to meet another NZ$4.9 million scheduled
repayment in March 2013. A mitigating factor is GFNZ's debtor receipts, which
is expected to average NZ$2.1 million per month, plus cutbacks on new
lending, which is to be used as last resort.
Outlook
The negative outlook reflects GFNZ's ongoing funding and liquidity challenges
in meeting scheduled debt repayments, including enduring delays and deferral
of new funding sources that increases the risk of default over the next six
months.
We believe that GFNZ would default on its credit if it failed to secure new
external funding as planned through August and September 2012. Although there
is some prospect that GFNZ will secure additional funding to support its
September 2012 repayment obligations, this success would not itself support
any upward revision of the finance company's rating from the 'CC' level. This
view reflects our concern about GFNZ's ability to meet substantial scheduled
debenture repayments and bank-facility reductions through to March 2013.
Longer term, the GNFZ rating could move upward if the company were successful
in securing sufficient funding to supports its ability to meet debt
obligations for a 12-month period.
Related Criteria And Research
o?Group Rating Methodology And Assumptions, Nov. 9, 2011
o?How Standard & Poor's Uses Its 'CCC' Rating, Dec 12, 2008
o?Rating Finance Companies, March 18, 2004
Ratings List
Downgraded; CreditWatch/Outlook Action
To From
GFNZ Group Ltd.
Counterparty Credit Rating CC/Negative/-- CCC-/Watch Neg/--
Quest Insurance Group Ltd.
Counterparty Credit Rating
Local Currency CC/Negative/-- CCC-/Watch Neg/--
Financial Strength Rating
Local Currency CC/Negative/-- CCC-/Watch Neg/--
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
Research Update: Ratings On GFNZ Group Ltd. Lowered To 'CC' On Funding And
Liquidity Uncertainties; Off
CreditWatch; Outlook Negative
www.standardandpoors.com. Use the Ratings search box located in the left
column.
End CA:00226372 For:GFL Type:CREDIT Time:2012-08-23 15:16:59
(20min delay)