Geneva Finance in technical breach of BOS banking covenant; seeks new long term funding deal

Geneva Finance, which was the first finance company to enter a moratorium and complete a debt for equity swap, has announced a pre-tax profit for the six months to September of NZ$600,000, but has warned it is now in technical breach of its lending covenants with Bank of Scotland and is trying to extend a long term loan deal with the bank. Geneva Finance's shares closed unchanged and untraded at 9 cents on Thursday. Investors swapped their debentures for shares valued at 36 cents in 2008. Here is a key part of the report republished below.

Geneva's has been advised by BOS International (Australia) Limited that it is unlikely that the current $35.0m facility which matures on 30th April 2011 will be extended in full beyond that date. To be proactive in dealing with this Geneva has entered into discussion with BOS regarding a revised lending strategy. This strategy requires a lower level of lending which impacts future profit forecasts. As a consequence of these re-forecasts it has become prudent to reduce the deferred tax asset by $3.2m which in turn has created a technical breach of the BOS minimum equity covenant. This breach is of a technical nature because the underlying deferred tax asset remains available for the future benefit of the group. BOS are fully aware of this technical breach. The discussions with BOS are commercially sensitive but the board are confident of achieving an outcome that is in the best interests of all stakeholders. Outlook The current economic climate is a difficult one. Funding is the key business issue. Changes to financial markets on both the global stage and within New Zealand have made it difficult to secure long term funding and it remains difficult to predict the extent to which the current recession will impact the company's ability to collect the "Old ledger". Despite this the group has made significant progress in developing the new business model. Successfully resolving the funding issues creates the opportunity to significantly enhance shareholder value.