SCF's Maier says he's getting used to S&P's 'glass half empty' view of the world

SCF's Maier says he's getting used to S&P's 'glass half empty' view of the world

South Canterbury Finance (SCF) CEO Sandy Maier says he’s getting used to the “glass half empty” view of the world from Standard& Poor’s after the credit rating agency downgraded SCF’s credit rating for the third time in four months.

(Update adds comments from the amendments in SCF's prospectus, made to reflect S&P's downgrade).

S&P yesterday cut SCF’s long-term credit rating two notches to B- and its short-term rating to C from B placing both on CreditWatch Negative. S&P credit analyst Derryl D’silva warned the long-term rating could be cut further, to CCC, if general debenture investor support were to materially weaken.

Maier told S&P had decided SCF’s progress in tackling its liquidity and debenture reinvestment requirements could stop because of owner Allan Hubbard being placed in statutory management by the Government and investigated by the Serious Fraud Office and he couldn’t argue with that.

“(But) it’s aggravating to be meeting the targets and be downgraded because we might not continue to do so. They (S&P) are looking at their view of the world. If they went to the streets of Timaru and saw the support for Allan they might have a slightly different view.”

Maier said SCF had reduced the NZ$950 million worth of debentures due to mature between March and October below NZ$500 million and this was still decreasing. “Another way to look at it is the debenture book is NZ$1.3 billion in round numbers,” said Maier.

“Over NZ$800 million is now (invested for terms) way out again. Not only is it past Oct but it’s largely past May of 2011.”

SCF, which is covered by the initial Crown retail deposit guarantee scheme that expires on October 12, has also been accepted into the extended guarantee scheme which kicks in on October 12 and expires on December 31, 2011.

Meanwhile D’silva told S&P felt debenture confidence “definitely” would be affected by what had happened to Hubbard.

“The CreditWatch Negative reflects what we think could be further pressures coming from that,” said D’silva. “From our point of view if we thought everything was managed and under control we probably wouldn’t have taken this action,” D’silva added.

A CreditWatch Negative listing implies a one in two likelihood of a downgrade to the credit rating within three months.

“We still think there’s a liquidity and refinancing risk that’s pretty significant and still reliant on debenture investor confidence which we think is going to be difficult to maintain after what has been announced over the weekend," said D'silva.

In its prospectus, amended to reflect S&P's downgrade, SCF says if its credit rating is downgraded further this may further impact its ability to raise money from both local and offshore institutions and investors under its stock and deposit offers. This would result in the company potentially not being able to raise the money required to fund its business activities and meet its payment obligations to investors.

"Further downgrades may also impact on the company's ability to operate as a non-bank deposit taker under the Government's proposed new regulatory regime for non-bank deposit takers," SCF says.

 Under the Reserve Bank's non-bank deposit taker rules there is no minimum credit rating requirement. Companies are, however, required to have a credit rating from an approved rating agency. 

The S&P downgrade comes after it also cut SCF’s long-term rating two notches on May 28 to B+ from BB and also follows a March 2 downgrade from BB+ to BB, which was still good enough to allow the company to gain acceptance into the extended Crown retail deposit guarantee scheme on April 1 where it remains despite the credit rating downgrades and issues surrounding Hubbard.

Last August S&P cut SCF from BBB-, the lowest of its investment grade credit ratings, to BB+, the highest of its speculative, or junk, grade ratings.



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