PGG Wrightson Finance's debt holders better with Heartland

The interests of PGG Wrightson Finance's (PWF) debt security holders not covered by the government's retail deposit guarantee scheme are likely to be enhanced by their holdings being switched to Heartland Building Society, says independent expert Northington Partners.

Tuesday, July 12th 2011, 7:10PM 1 Comment

by Jenny Ruth

In the next step towards Heartland purchasing PWF, the latter's debt holders, bondholders and secured and unsecured depositors, are to vote on the switch on August 8.

Northington says while some PWF investors will switch from a secured position to an unsecured position, "we believe that the practical impact of the change in security position will be limited."

Heartland has a higher and investment grade credit rating, "BBB-"

compared with PWF's "BB" rating, is larger and more diverse and arguably has greater access to capital, a position which will be enhanced if it gains the banking licence it is seeking, Northington says.

"We believe that Heartland is less likely than PWF to suffer a level of financial distress over the relevant future projection period."

The position of PWF's debtholders covered by the guarantee scheme, which expires on December 31, won't change, regardless of whether the acquisition proceeds.

If the acquisition doesn't proceed, Northington expects PWF would face "increasing pressure on access to funding as bondholders, debenture holders and depositors adjust to structural changes in the NBDT (non-bank deposit takers) sector," it says.

"We consider there to be a reasonable degree of uncertainty about how investors in the PWF debt securities will behave when the (guarantee

scheme) expires," it says. "This uncertainty is amplified by PWF currently operating with a sub-investment grade credit rating," it says.

"Given its recent history and shareholder changes, (parent company, the NZX-listed PGG Wrightston) is arguably in a weaker position to support the finance subsidiary."

Northington says at May 31 nearly 70% of PWF's bonds, debentures and deposits, or about $289.1 million, were due to mature before December 31. That includes about 50% of the debentures and 100% of the bonds and deposits. About 70.4% of that debt is covered by the guarantee scheme.

Of the $127.2 million of PWF debt securities maturing after December 31, 39.2% are covered by the guarantee scheme until December 31.

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