NZF facing the prospect of default

The Financial Markets Authority (FMA) has forced NZF Group to withdraw subsidiary NZF Money's prospectus although NZF has tried to obfuscate this was the reason for the withdrawal.

Friday, July 22nd 2011, 5:00AM

by Jenny Ruth

On the back of FMA's action Standard & Poor's has cut NZF Money's rating to "CC" from "CCC-," saying "unless NZF is able to inject new funds into the business the company will likely default on its debt obligations next week."

Late yesterday, FMA chief executive Sean Hughes said the withdrawal followed an FMA investigation which "revealed matters of concern regarding NZF's disclosures of asset quality and liquidity. After discussions between NZF and FMA, NZF agreed on July 18 to withdraw its prospectus and cease issuing secured deposits under its current offer documents."

Earlier yesterday, NZF sent a notice to the stock exchange saying it was withdrawing the prospectus due to one of its borrowers informing it of an unconditional sale failing to settle.

It later issued a clarification saying it withdrew the prospectus voluntarily on Monday "following discussions" with the FMA and that it had been since discussing an amendment to the prospectus acceptable to the FMA.

However, once it was advised about the sale failing to settle it decided not to proceed with the amendment, NZF's clarification said.

The earlier statement had said one of its borrowers advised it "that the purchaser with whom an unconditional contract of $3.5 million had been signed, and was due for imminent settlement, would not be able to settle on time and instead wished to renegotiate the terms of the existing unconditional contract that was in place."

The company is "working through various options to address the impact of this delay on its projected cashflow," it said.

S&P analyst Nico De Lange says the settlement failure means NZF's cash balances are "insufficient to meet debenture maturities scheduled for next week."

De Lange says S&P will lower NZF's rating to "D" if it fails to meet any of its creditor obligations.

He says NZF's rating is likely to remain at "CC" or "C," even if it can successfully raise sufficient funds to meet its obligations over the next few weeks.

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