Whakatane-based Asset Finance is due to register a new prospectus by the end of August as it again seeks to raise money from the public following a spell where it was prevented from doing so by the Financial Markets Authority (FMA).
Credit rating agency Standard & Poor's (S&P) has revised its outlook on Asset Finance to stable from negative and affirmed its credit rating at B, a speculative or junk grade rating, which suggests an entity is "more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments."
Asset Finance, whose founder and managing director is Clive George, offers personal and business loans ranging from NZ$400 to NZ$400,000 plus factoring services.
S&P credit analyst Peter Sikora said the outlook revision reflects the credit rating agency's view that Asset Finance has effectively managed its short-term liquidity risk stemming from an interim order put in place by the FMA on April 13 this year that expired on May 4. The order was issued because the FMA considered the prospectus disclosure of a loan the finance company made to Rexon Ltd. misleading. See more on this here.
The order forced Asset Finance to put new and reinvested debenture deposits into its solicitor’s trust account, meaning this money wasn't available for meeting ongoing company needs.
"Asset Finance's ability to meet its liquidity needs during the time the order was in force was largely supported by its cash holdings, which totaled NZ$4.2 million at March 31, 2012; this amount sufficiently covered short-term liquidity needs, including funds required to repay maturing debenture stocks," Sikora said.
"At the end of July 2012, Asset Finance held NZ$2.5 million in cash, which is sufficient to cover maturing debentures over the next six months in the absence of new lending. The registration of a new prospectus, expected by Aug. 31, 2012, will allow Asset Finance access to funds currently under the solicitor’s trust account, which is a positive factor to our view of Asset Finance’s ability to manage its ongoing liquidity needs," Sikora added.
Today only 10-12 finance companies have prospectuses open seeking debenture funding from the public, compared with more than 60 six years ago, following the demise of dozens of finance companies. See details of the failed companies in our Deep Freeze list here.
In the year to March 31 Asset Finance's net loans fell to NZ$14.9 million from NZ$16.9 million with impaired loans up to NZ$2.3 million from NZ$1.3 million. The weighted average interest rate for the firm's loans, which run for as long as five years, was 21.02% at March 31. Of the loans, 49% are secured by cars, 22% by second mortgages and 16% by first mortgages.
Asset Finance had NZ$16.6 million worth of secured debenture stock on issue at March 31, down from NZ$17 million a year earlier, paying a weighted average interest rate of 10.63%. It also had NZ$791,087 worth of unsecured capital notes, down from NZ$1 million, paying a weighted average interest rate of 12.39%. See more on the company's annual results here.
Sikora said S&P's stable outlook on Asset Finance reflects its expectation the company will continue to effectively manage its liquidity position and improve its asset-quality position through the successful exit of a number of large historic loans, and this ought to support future operating-performance prospects.
“We may lower the rating if Asset Finance were unable to quickly re-establish its debenture funding capability, as that could compromise the company’s overall liquidity position and ability to meet its debt obligations, particularly if the company were to encounter difficulties in realising collaterals when exiting a number of large historic problem loans,” said Sikora.
“The rating would also come under pressure if there were meaningful new provisions arising from the historic loans, or if significant new nonperforming assets were to emerge from the historical loan book.”
He said S&P doesn't expect to raise the Asset Finance's rating in the medium-term.
"An upward adjustment would require a longer period of demonstrated stability in key credit-quality metrics and the establishment of a track record of good operating performance that supported a material increase in the company’s capital base and key capital-adequacy metrics over time. In addition, a higher rating would require further evidence that the company could strengthen its market position by achieving meaningful profitable growth, a stable market position, and attain meaningful growth rates to support a higher rating," Sikora said.