South Canterbury to repay US$100 mln to lenders over 6 mths (Update 2)

South Canterbury Finance (SCF) has announced it will repay a US$100 million loan to US lenders over the next five and a half months and that the unwinding of foreign exchange hedges around this US Private Placement will provide cash for the Timaru-based  financier. (Update 2 includes details in announcement and full statement) SCF said it was also close to finding a replacement lending facility of NZ$75 million with a third party to replace an unused NZ$100 million bank lending facility that was cancelled by mutual agreement with local banks. The new facility would be effective over the next week, it said. Earlier on Thursday, trading in SCF bonds was  halted on the NZX ahead of the announcement about how South Canterbury would resolve the withdrawal of the US Private Placement. The trading halt was lifted after the close of trade on Thursday.

The US lenders in the private placement had the right to withdraw their funding after South Canterbury's credit rating was reduced to a sub-investment BB+ from an investment grade BBB- by Standard and Poor's in August. South Canterbury said it was still working on a capital restructure and gave no timetable for an announcement. It also did not give a timetable for the re-registration for its prospectus. South Canterbury needs a significant capital injection if it wants to have any hope of keeping its BB+ credit rating and extending its government guarantee from October next year. Earlier the Otago Daily Times reported the US private placement issue cast a pall over South Canterbury's efforts to re-register its prospectus. SCF released its audited annual report for the year ended June 30, 2009 earlier this month, revealing that its banks had turned off an unused NZ$100 million lending facility to the finance company while it hunted for new capital. The annual report also included an opinion from SCF's auditors, fellow Timaru firm Woodnorth Myers & Co, that there was a "fundamental uncertainty" about South Canterbury Finance's status as a "˜going concern' because of the risk that US lenders may withdraw a NZ$153 million private placement in the wake of South Canterbury's downgrade to a sub-investment grade BB+ credit rating by Standard and Poor's. Here is the full statement below from SCF.

South Canterbury Finance is pleased to make the following announcements to its investors and the market. The Company has reached agreement in principle on repayment terms with the five noteholders who invested pursuant to the Company's $US100 million Private Placement facility (USPP). The agreement provides for the principal to be repaid over the next 5.5 months. The Trustee for South Canterbury Finance debenture stock investors, Trustee Executors Limited, and ratings agency Standard and Poor's, have been briefed on the arrangement. Documentation is in the process of finalisation. Unwinding currency swap hedges on the USPP facility will release cash for South Canterbury Finance. USPP investors were able to seek immediate repayment of their notes when certain covenants were breached following release of South Canterbury Finance's audited financial statements for the year to June 2009. The Company is now moving to register a new prospectus for the issue of debenture stock and deposits. The Company continues to have the benefit of a Crown guarantee under the government's retail deposit guarantee scheme in respect of its debenture stock and deposits that mature, or otherwise become payable on or before 11 October 2010. The Company also intends applying to participate in the extended deposit guarantee scheme announced by the Government on 22 August 2009. In order to be accepted into the extended Crown guarantee scheme, the Company will need to meet certain eligibility criteria and be accepted for participation by the Secretary to the Treasury. South Canterbury Finance has cancelled by mutual agreement with its banks the $100 million standby credit facility. This facility was undrawn. A new credit facility for $75 million with a new third party provider is in the final stages of being arranged and is expected to become effective over the next week. South Canterbury Finance is continuing to work with its principal shareholder, Southbury Group Limited and its advisors, Forsyth Barr and Harmos Horton Lusk, on a restructuring and recapitalisation programme for the group. This will include the appointment of new independent directors to South Canterbury Finance. Further details will be announced as they are finalised.