Standard and Poor's has commented that the government's decision to pay investors and creditors of South Canterbury Finance around NZ$1.775 billion would not immediately affect New Zealand's AA+ credit rating.

Here is its full statement below.

Standard & Poor’s Ratings Services said today that its views on New Zealand's sovereign creditworthiness (foreign currency rating AA+/Stable/A-1+; local currency rating AAA/Stable/A-1+) are not immediately affected by today's announcement that money owed to South Canterbury Finance Ltd.’s (SCF’s) debenture holders was paid under New Zealand’s Crown retail deposit guarantee.

The government announced today that it has nominated SCF’s trustee, Trustees Executors Ltd., as the eligible creditor under the terms of the guarantee and has paid the trustee NZ$1.6 billion (0.8% of GDP) in full today.

The government expects to cover this payment through the guarantee fee charged for participation in the scheme and the receipt of proceeds from the receiver stemming from the sale or effective resolution of repayment of SCF’s assets over time. The final expected net cost to the government is already provided for in its May Budget, within the overall provision of about NZ$900 million for all companies covered by the scheme.

The government’s action follows the trustee’s announcement today that it has appointed a receiver at the request of SCF's directors. The directors' decision stems from SCF's inability to complete a recapitalization and restructure that would have enabled SCF to certify with its trustee that it meets various financial covenant requirements under its debenture trust deed for the financial year ended June 30, 2010.

The trustees had previously granted SCF a trust deed breach waiver, which is set to expire today. The 'AA+' long-term and 'A-1+' short-term foreign currency sovereign ratings on New Zealand reflect our opinion of the country's sound public finances (with central government net debt to GDP of about 14% in 2010) as well as its sound financial sector, its resilient economy, and its open and transparent policy environment. New Zealand's high level of private-sector external indebtedness offset these strengths, in our view.