International credit rating agency Standard & Poor's Ratings Services said May 9 that is has lowered its long-term issuer credit rating on New Zealand finance company NZF Money Ltd. (NZF) to 'CCC-' from 'CCC'.

"NZF's liquidity position remains delicately placed in our view, with the company's cash levels expected to be volatile and drop to very low levels through calendar 2011, absent a further cash injection into the business," Standard & Poor's credit analyst Nico De Lange said. "Of greatest concern is that failure to progress the repayment of past-due loans could result in NZF running short of cash in calendar 2011, particularly if debenture-reinvestment experience is weak."

NZF Money Ltd. is the deposit taking arm of listed financial services company NZF Group.

NZF Chief Executive Officer Mark Thornton, in a statement responding to the latest downgrade by S&P, said, "[Th]e rating by S&P had not come entirely unexpected given S&P's focus on anticipated loan repayments. Whilst some delays had been encountered, NZFM has continued to work with all of its borrowers to ensure settlement of several unconditional agreements is achieved within a timeframe acceptable to NZFM. The rating also does not reflect the due diligence process that is ongoing between NZF and two potential new business partners and the positive impacts that a successful deal would have on NZFM's business."

S&P, in its ratings release, said NZF's on-balance sheet cash position has improved recently as a result of some successful loan repayments (net of a secured loan repaid to one of its directors) and a cash injection from NZF Group Ltd. (Not rated). However, anticipated loan repayments continue to be delayed and scheduled debenture maturities through calendar 2011 remain material when assessed against projected cash levels, in S&P's view."

S&P's ratings remain on CreditWatch with negative implications, giving a 50/50 chance of a further downgrade in the next three months. S&P expects to resolve its CreditWatch in the next few months after assessing NZF's liquidity, funding, and business profiles, particularly its progress in exiting past-due loans and its debenture reinvestment experience.

Mr. Thorton said, "NZFM continues to manage its business on a prudent basis and has met all of its payment obligations to investors since it first offered secured deposits in late 1999. NZFM would like to thank all of its long term loyal investors for their continued support."

As a sign of its cash woes, early this year, NZFM elected not to pay cash to investors in its listed capital notes, and instead gave them the option to either roll-over the debt into a bond paying a lower interest rate or to convert their investment into shares.
NZFM's shares have slumped 70% this year.

Business partner still to be identified

On February, NZF announced that it was in the final stages of negotiation with a new business partner, who it believed would be in a position to offer NZF the most effective solution for its current and future capital needs, in order to take advantage of growth opportunities that exist within the Residential Mortgage Backed Securities market in New Zealand.

The process has taken much longer than originally expected due in part to the negative ramifications of the Christchurch Earthquake but also NZF's desire to secure the best possible long term business partner," an April 12 statement by the company said.
"NZF is now in discussion with two parties and would expect to be able to announce firm details of the preferred partner by 29 April 2011," the statement added.

However, an April 28 announcement by the company said that due diligence has not been completed by the two interested parties. "At this point in time, we are able to report that the due diligence process is still ongoing with both interested parties and that we will provide a further update once this process has been completed."

Two Directors in Past Two Months

NZF Group Limited announced April 12 that following the sale of the Huljich KiwiSaver business, Peter Karl Christopher Huljich has decided to resign from all Listed Company Directorships to focus on his private business interests. NZF announced in March that due to continuing health issues, Mr John Alan Callaghan has resigned from being a Non-Executive Director of all companies in the NZF Group.