South Canterbury's related party loans have been of major concern to Standard and Poor's and contributed to its downgrade of South Canterbury's rating, which prompted withdrawal of a debenture offer in mid-August and triggered US backers to call in $US100 million ($NZ133 million) of loans.
South Canterbury's re-released prospectus for new debenture securities this week outlined positive, sweeping changes are afoot to recapitalise the giant South Island lender.
While SCF has gained crucial breathing space, the pressure remains to clean up all aspects of its balance sheet as soon as possible.
South Canterbury's prospectus revealed related party loans to companies associated with its chairman, Allan Hubbard and directors, stand at $220.3 million, up on estimates several weeks ago of $130 million, Craigs Investment Partners broker Chris Timms said yesterday.
"Allan Hubbard's wealth may be extensive, but it is not that liquid. Over time, [Hubbard's] Southbury Group will need to sell assets in order to clean up South Canterbury's balance sheet," Mr Timms said.
He said while bad debt provisioning for impaired loans stood at $301.2 million, including $55.1 million already written off, the prospectus warned of a risk South Canterbury could "suffer greater losses" if borrowers were unable to repay in full and South Canterbury could not recover its loans.
The prospectus said, "If the company experienced losses in its loan portfolio significantly in excess of the amount of its provisions [$77.9 million], that may impact adversely on the ability of the company to meet its obligations to its creditors, including holders of stock and deposits, as and when they fall due".
Mr Timms said registration of the prospectus this week, promotion of a $75 million private placement, Southbury's contribution to penalty fees and guidance on asset sales were all positive news Standard and Poor's would want to hear.
South Canterbury said in its prospectus it intended paying off $50 million of related party loans, but with the total standing at more than $220 million, Mr Timms said South Canterbury would have been giving Standard and Poor's assurances of its intentions, as the agency could announce a rating change at any time.
"This is the first phase, so the priority now is paying back the US lenders [$US100 million planned over five and a-half months] and dealing to inter-party loans," he said.
A month ago, Standard and Poor's said South Canterbury's liquidity levels were "modest" for various reasons, including the long-time sticking point of the then estimated $130 million South Canterbury had lent to Hubbard-associated companies.
Standard and Poor's further downgraded South Canterbury's BB+ rating by putting it on negative credit watch; meaning the company had gone from a one-in-three chance of downgrade during the next three months to a 50:50 chance.
A downgrade would exclude it from the Government's deposit guarantee scheme.
Party loans of SCF
Principal related party loans of South Canterbury Finance (SCF)
- Kelt Finance Ltd $39.1 million - 75% owned by SCF
- Southbury Group Ltd $65.2 million (SCF's parent).
- Helicopters (NZ) Ltd $20.3 million (loan secured).
- Plum Duff Ltd $15.3 million (loan secured).
- Commtest Instruments Ltd $12.5 million (loan secured).
- Management/former directors $21.5 million (secured against Southbury shares).
