US investors to review support for South Canty

The downgrade of South Canterbury Finance's credit rating to junk level by Standard & Poor's will trigger a review of a US$100 million ($147 million) private placement facility in the United States.

The US investors have the option of requiring South Canterbury Finance to repay the facility.

Chief executive Lachie McLeod said South Canterbury Finance had been keeping in contact with the investors, which it normally did. He confirmed that the downgrade triggered a review period of the facility but said the period of the review was confidential.

There are five investors in the facility.

"We will be talking to them and working through it with them," McLeod said.

He said the company was disappointed at the timing of the downgrade by S&P on Thursday.

South Canterbury Finance's credit rating was cut to the non-investment, or junk, grade of BB+.

An update of the group's announced intention to introduce new capital is likely in the next four weeks.

All debenture holders with deposits of up to $1 million are covered by the Crown deposit guarantee.

Analysts said junk ratings for non-banks would put pressure on the Crown to extend the guarantee past the current period to October 12, 2010.

Major banks have complained that they bear most of the cost of the guarantee, which they do not need. Only 11 banks in the world are rated AA and four of them are the big Australian banks that operate in New Zealand.

South Canterbury Finance said last month that shareholder Allan Hubbard had injected $40 million of new capital in the business which would have a $58 million provision for bad debts in the year to June 30.

Under a legal underwrite agreement Hubbard will stand as security for any further specific loans that could become impaired. "South Canterbury Finance is a sound, profitable business," Hubbard said, "and I am committed to supporting South Canterbury Finance and its 45,000 investors who have loyally supported the group for 83 years."

- NZPA