MTF wholesale funding dries up; now reliant on CBA, Westpac

Dunedin-based cooperative Motor Trade Finances, which has NZ$585 million of vehicle lending spread across New Zealand, has reported that it has been unable to issue into the European Commercial Paper (ECP) market and is now fully drawn on a NZ$600 million standby lending facility from its banks Commonwealth Bank of Australia and Westpac. MTF's funding model has been reliant in recent years on a ECP funding facility that is rated A1+/P-1 by Standard and Poor's and Moody's. The Euro CP market has been shut in recent months because of the global credit crunch and the standby bank facility expires on December 23 this year. A liquidity crunch for MTF would have wider implications for the car sales sector, given it has over 12% of the market and is now the biggest vehicle lender in the market after the departure of GE Money and GMAC last month."We last issued ECP on September 23, but the market is almost impossible to issue into at the moment. We're fully drawn on our (bank) liquidity facility right now," MTF Managing Director Angus Bradshaw told interest.co.nz.

CBA has NZ$432 million of the facility, while Westpac has NZ$168 million of the facility.

MTF is now raising NZ$8 million of fresh capital from its car dealer shareholders and is investigating other funding options, including eventually re-entering the retail debenture market. The capital raising would require its dealer shareholders to contribute either NZ$10,000 or NZ$20,000 to buy shares in the corporatised cooperative. MTF believes 80% of its deal shareholders will buy shares and it also believes its banks will roll over the facility again until June next year. MTF aims to raise up to NZ$20 million of capital, including capitalisation of undistributed profits and conversion of 'A' cooperative shares in regular shares. MTF shareholders agreed on October 29 to the capital raising plan, including the first half of the NZ$8 million capital raising in December. Eventually MTF is looking at other funding options, including the potential for outside equity, if required. "All other things being equal, our ultimate goal is to re-enter the retail funding arena," Bradshaw said. Meanwhile, MTF will have to surmout its December 23 bank funding rollover and look to enter the commercial paper or medium term note market in Australia and New Zealand rather than Europe. MTF directors were confident that the business was a "going concern" in the annual report. "The directors believe the existing facilities will be rolled over until at least June 2009 consistent with the actions of the same providers in rolling over the standby facilities on their expiry in December 2007 and June 2008," MTF's directors said the 'going concern' section of its annual report. "The directors' confidence is based on discussions with each of the standby liquidity providers, the track record of sustainable earnings before profit distributions to transacting shareholders and the quality of the finance receivables, including low arrears," they said. "At no stage in these discussions have the standby liquidity providers indicated they will not be rolling over the facility on 23 December 2008," they said, adding however they were aware of the risks of CBA and Westpac not rolling over the facility. "The directors acknowledge the risk, as a result of the global credit crisis and resulting factors outside their control, of the Company and Group not being able to continue as going concerns and not being able to pay their debts as and when they become due and payable," the directors said. "If the Company and Group were unable to continue in operational existence, and pay debts as and when they become due and payable, adjustments may have to be made to reflect the situation where assets may need to be realised and liabilities extinguished, other than in the normal course of business, and at amounts which could differ significantly from the amounts at which they are recorded in the Balance Sheet," the said. "We are confident that MTF is a survivor and it will be as long as it continues to receive the support of its bankers, its shareholders and its customers," Bradshaw said in the annual report. "We have taken the steps to ensure we have sufficient capital and, if successful, this will allow us to work with our bankers to put more enduring and efficient funding in place." Bradshaw said arrears were well within long term targets and had actually fallen recently because of a tightening of credit criteria. * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.