South Canterbury Finance has bought itself crucial breathing space by negotiating to pay back a $US100 million ($NZ135 million) loan, staggered over five and a-half months.
While it announced on Thursday it had secured an undisclosed provider of a $75 million credit facility, it has lost a New Zealand $100 million banking facility, which it had not drawn down on.
A Standard & Poor's rating downgrade in August to non-investment, junk-bond territory, gave the US consortium an option to call in its $US100 million facility during the following three months, with South Canterbury announcing on Thursday it had reached agreement in principle on repayment terms with the consortium.
Craigs Investments Partners broker Peter McIntyre said having come to arrangements to pay the US consortium was a key element to South Canterbury getting on with its restructuring and refinancing plans.
"It was the key issue to deal to at the moment. It clears the way to get their refinancing options under way," Mr McIntyre said.
The finance company came off a trading halt yesterday and investors appeared to take the previous day's news favourably.
South Canterbury's preference shares were trading up at 33c, having earlier in the week plummeted to equal an all-time low of 23c.
The preference shares were issued at $1 almost three years ago and raised $100 million.
Mr McIntyre estimated South Canterbury would benefit from about $12.5 million in cash from currency swap hedges while repaying the $US100 million.
However, it was "highly likely" that after the principal was repaid, South Canterbury would be liable for penalty interest payments to the consortium.
"There's a high chance of there being an unknown quantity of penalties they will have to pay later," Mr McIntyre said.
South Canterbury, with a loan book of $1.7 billion but $350 million in impaired and past-due-date loans, has been the centre of speculation that it was about to announce restructuring and refinancing arrangements.
The company had planned to relaunch an August debenture on September 30, and this week said it would shortly put out a prospectus to resume raising funds from debenture issues.
International rating agency Standard & Poor's downgrading of its investment status has compounded concerns about its performance.
A further downgrade would damage its investment status and borrowing costs.
In recent months, South Canterbury has been beset by problems, ranging from an loss for the year of $50.4 million, increased impaired loans of more than $350 million, a $35 million loss on investments and concerns over related party loans of $130 million - to a backdrop of about $1 billion coming due in debenture releases.
