Geneva now CCC

A proposal from the struggling New Zealand finance company, Geneva Finance, that debenture and subordinated note investors defer approximately 50 per cent of their currently scheduled principal repayments, has led S&P to lower the long-term credit rating assigned to the company to 'CC' from 'CCC' and leave the rating on CreditWatch with negative implications. Geneva's captive insurer, Quest Insurance Group Ltd., was similarly affected.  

Such action on the part of Geneva will be treated as a selective default and would result in the rating on Geneva being lowered to 'SD'.  The proposal results from a negotiated extension of its funding facility with BOS International (Australia) Ltd.

S&P expects debenture and subordinated noteholders will get to vote on the proposal in the last week of March.

S&P lowered the ratings on five tranches of notes issued by Sapphire IV NZ Series 2007-1 Trust as a result of the deteriorating performance of the underlying residential loan portfolio and the lower available credit support for the affected notes to absorb future losses. The transaction has limited excess spread available to offset losses to date or in the future.

Ratings were lower on the Class MA, MZ, BA, BZ and CA tranches to 'A', 'BB', 'B', 'CCC' and 'CC' from 'AA', 'A', 'BBB', 'B+' and 'CCC+', respectively. Ratings on the Class AA and AZ notes were affirmed at 'AAA'.

S&P expects the portfolio to experience further losses and the tail-end risk for this transaction is considered to be significant, given adverse selection risk coupled with higher transaction costs as cheaper notes repay, leaving the more expensive notes outstanding. Given this outlook, the ongoing management and servicing of the portfolio is considered critical to mitigating the tail-end risk and containing future losses.