NZF Money prospectus pulled after Financial Markets Authority probe shows concerns about disclosure on asset quality & liquidity

Finance company NZF Money, a subsidiary of the sharemarket listed NZF Group which also owns 50% of Mike Pero Mortgage Holdings, has pulled its prospectus from the market after a Financial Markets Authority (FMA) probe, meaning it's no longer able to borrow money from the public.

NZF Group said the move was made after advice was received from one of NZF Money's borrowers that a NZ$3.5 million contract with a buyer wouldn't settle as expected. NZF Money said it was working through 'various options" to address the impact of this on its projected cashflows.

"Further announcements will be made in due course," the company said.

However, after NZF Group released its statement, the FMA followed with one of its own. In this the regulator said NZF Money's debt prospectus had been withdrawn following an FMA investigation. An inspection of NZF Money's documents and records revealed "matters of concern regarding NZF’s disclosures of asset quality and liquidity," FMA CEO Sean Hughes said.

"After discussions between NZF and the FMA, NZF agreed on 18 July to withdraw its prospectus and cease issuing secured deposits under its current offer documents," Hughes said.

“Ensuring investors are fully informed is of paramount concern for us, and in this case we took swift action to ensure that NZF’s offer documents accurately reflected its financial position,” added Hughes, who also said the FMA’s investigation was ongoing and it would take further action where necessary.

Later Standard and Poor's downgraded NZF Money's credit rating to CC from CCC- because of the failure of the NZ$3.5 million deal to settle. It said NZF was likely to default next week if it could not raise fresh funds.

The prospectus shows NZF Money had secured debenture stock of NZ$18 million at June 24 this year, with its reinvestment rate for May put at 51.94% and average for 2011 at 48.76%. As of June 24, the property lender had total loans and advances to customers of NZ$29 million with loan impairments at NZ$3.7 million with potential for another NZ$2 million, and total equity of NZ$10 million.

NZF Group CEO Mark Thornton told interest.co.nz in March that he was "frustrated" with S&P, banks were refusing to even talk about extending a credit line to NZF Money. and that NZ Money hadn't loaned any new money in about a year.

At March 31 the NZF Group had cash of NZ$5.65 million and total undrawn term loan facilities of NZ$116.4 million with Westpac, from a total loan of NZ$225 million. NZF Group sold its 70% stake in Finance Direct on March 30.

NZF Money is not a party to the extended Crown retail deposit guarantee scheme.

See NZF Group's statement below:

NZF today advises that the Board of its subsidiary company, NZF Money Limited (NZFML), has notified NZFML’s Trustee, Covenant Trustee Company Limited (Trustee), that it has withdrawn NZFML’s 2010 Debt Prospectus from the market and has ceased issuing secured deposits under its current Offer Documents.

This action was taken by the Board of NZFML following the receipt of advice from one of NZFML’s borrowers that the purchaser with whom an unconditional contract of $3.5 million had been signed, and which 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.

NZFML has advised the Trustee of these developments. It is currently working through various options to address the impact of this delay on its projected cashflow. Further announcements will be made in due course.

And here's the FMA's statement:

NZF Money Limited (NZF) has withdrawn its 2010 debt prospectus from the market following an investigation by the Financial Markets Authority (FMA).

FMA CEO Sean Hughes said that an inspection of the documents and records of NZF, a subsidiary of NZX-listed NZF Group Limited, revealed matters of concern regarding NZF’s disclosures of asset quality and liquidity. After discussions between NZF and FMA, NZF agreed on 18 July to withdraw its prospectus and cease issuing secured deposits under its current offer documents.

Mr Hughes said FMA’s investigation was enabled by new powers of notification and inspection conferred by the Securities and FMA Acts.

“Ensuring investors are fully informed is of paramount concern for us, and in this case we took swift action to ensure that NZF’s offer documents accurately reflected its financial position,” Mr Hughes said.

FMA’s investigation is ongoing and FMA will take further action where necessary.

Here's the Standard and Poor's statement:

Standard & Poor's Ratings Services today said that it had lowered its long-term issuer credit rating on New Zealand finance company NZF Money Ltd. (NZF) to 'CC' from 'CCC-'. At the same time, we have affirmed our short-term rating on NZF at 'C'. The ratings remain on CreditWatch with negative implications, where they were initially placed on March 3, 2011.

"The rating action reflects our view that unless NZF is able to inject new funds into the business the company will likely default on its debt obligations next week," Standard & Poor's credit analyst Nico De Lange said. "This anticipated liquidity shortfall stems from news that a loan settlement relating to the NZ$3.5 million sale of a property by an NZF borrower--which was earmarked to repay an NZF loan--will not settle as anticipated under an unconditional sale contract. This event has also resulted in NZF announcing today that it has withdrawn its debenture prospectus from the market."

Cash balances available to NZF are, at this stage, insufficient to meet debenture maturities scheduled for next week. The potential for a liquidity shortfall was highlighted in our research update published on May 9, 2011. At that time, we commented that NZF's liquidity position remained delicately placed and that NZF may run short of cash in calendar 2011 if the company failed to progress the repayment of past-due loans.

Mr. De Lange added: "We will lower the issuer credit ratings on NZF to 'D' if the company fails to meet any of its creditor obligations. The ratings are likely to remain at 'CC' and 'C’, and remain on CreditWatch with negative implications, even if NZF successfully raises sufficient funds to meet its obligations over the next few weeks while it works on longer term options to secure funds to meet its liquidity needs and restore its business viability."

(Updates add further detail, FMA statement and S&P downgrade).