Takefuji 16-Jun-09 12:57 pm Takefuji has entered talks with bond insurance group Ambac after its credit rating was downgraded to junk by Standard & Poor’s, triggering possible early redemption of Y109bn worth of the Japanese moneylender’s asset-backed securities.
S&P downgraded Takefuji’s credit rating to BB+ from BBB-, citing concerns about its financing capability and higher credit costs.
EDITOR’S CHOICE
Takefuji in Ambac talks after downgrade - Jun-16Takefuji faces funding shortfall - Jun-10Japan faces consumer finance fears - May-07Kabarai crisis highlights risk in Japanese finance - Sep-26Tokyo set to cap consumer loan rates - Jul-07Raised Takefuji stake fuels takeover talk - Jul-13As a result, the Japanese consumer finance group faces the prospect of having to redeem its Y109bn in ABSs earlier than scheduled unless it can come to an agreement with Ambac for easier terms.
Ambac, which has provided guarantees to investors in Takefuji’s ABSs, has the right to take ownership of Y302bn worth of its loan receivables if the Japanese group fails to redeem its Y109bn ABS issue.
Takefuji said it had entered discussions with the guarantor of its ABSs, but declined to provide details.
Although Takefuji is not obliged to redeem the ABSs as a lump sum, it could be forced to do so within one year, said Takehiro Tsuda, analyst at Nikko Citigroup.
The company also has Y56bn in other short-term borrowings, which Takefuji must repay by March 2010.
“The downgrade (by S&P) makes Takefuji’s funding environment even tougher,” Mr Tsuda said.
“As a result of the downgrade, we expect Takefuji to substantially revise its medium-term [recurring profit] target and think it will have to resort to an [overall business] reduction,” he said.
The group had Y97.9bn in cash and cash equivalents at the end of March.
Takefuji was likely to have to recover its loans in order to meet it repayment obligations, Mr Tsuda said .
Takefuji forecasts a decline in its loan balance to Y705.3bn by next March and Y573bn by March 2012.
But Mr Tsuda forecasts the group’s loan balance could shrink to Y560bn by the end of next March, or less than half the level at the end of March 2008.
The group has been one of the hardest hit by changes to Japan’s moneylending law, which is forcing consumer finance companies to slash their interest rates from a maximum of 29.2 per cent to about 18 per cent.
Consumer finance groups have also faced a high level of interest payment refund claims, after court rulings opened the way for borrowers to seek redress over high loan rates.
In the year to last March such payments amounted to Y145bn for Takefuji and claims have remained high this fiscal year.
The legal changes have forced consumer finance groups to set aside massive reserves each year to cover their potential payments.
In the last financial year, Takefuji set aside Y229.7bn in interest refund reserves and suffered a net loss of Y256.1bn.
