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Stricken Geneva Finance is pleading with its investors for more time to stitch together a rescue package to stave off receivership.
And international credit rating agency Standard & Poor's has overnight (NZT) dropped its long-term rating of Geneva even further, to the ground-zero D level, down from B-.
S&P claim a payment default occurred with Geneva's nonpayment of debenture redemptions upon their due date. "Under these circumstances the only available course of action to S&P is to lower the long-term credit rating on Geneva to 'D'," S&P said in a statement.
The company, with assets of about $170 million, said yesterday it had written to investors to seek a freeze on all repayments of principal until next April.
The term of all investments would be extended by 6 1/2 months and the company is also to cease accepting new money.
"This will allow the company 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," said chief executive Shaun Riley.
The company last week said it was working on a deal with a "strongly rated international financial institution" on the bail-out plan.
Like others in the sector Geneva, whose business consists of personal loans, hire purchase and motor vehicle finance, has suffered from a lack of new funds as investors spooked by the 10 finance company failures over the past 18 months have placed their money elsewhere.
This year alone, seven firms have collapsed as the main local effect of a global credit crunch.
Ratings agency Standard & Poor's several weeks ago indicated Geneva's B+ credit rating was at risk of a downgrade as a result.
S&P last Wednesday acted to reduce Geneva's rating to B-, which Mr Riley said prompted yesterday's move.
"There's been an erosion of confidence across the sector that, coupled with Standard & Poor's announcements, has had an impact on us," he said. "The board and management felt that would further impact the reinvestment rate and we needed to act quickly to protect all investors."
"We are working extremely hard to put together a debt and equity package, this now gives us time to complete that it in a more co-ordinated manner."
Mr Riley said Geneva owed about $138 million in total to its debenture investors and the Bank of Scotland, with which it has a $50 million credit facility.
Under the terms of the moratorium Geneva will continue to trade and lend, "while maintaining business operations, building up cash reserves and reducing costs".
Its compliance with the terms of the moratorium will be monitored on behalf of its trustee by a third party.
It will hold meetings on November 5 for investors to vote on the proposal. At least 50 per cent of investors must vote and the company needs to receive approvals equal to 75 per cent Geneva informed S&P of its plan on Monday night, which led to S&P downgrading the firm's credit rating again yesterday. It now has a D rating, with its moratorium effectively meaning it will technically default on payments to investors.
* An explanation of how Standard & Poors' ratings are calculated.
