Wellington: Fisher & Paykel Finance (FPF), the consumer-finance unit of F&P Appliances, plans to cut costs by selling debt securities collateralised by its loans
FPF manager Alastair Macfarlane said Appliances, which last month bought Retail Financial Services (RFS) from Australia’s Foodland Associated for $188.7 million, plans to hire an adviser by the end of January to consider how the two companies can pool consumer loans.
“It is the most critical and the first” potential cost-saving, he said.
Cutting borrowing costs may boost earnings for consumer-credit companies, after New Zealand lending soared 47% during the past five years to $7.89 billion in October, according to the Reserve Bank.
A housing boom, which drove the average house price up 21% in the past 12 months, fuelled the need to finance purchases of appliances such as refrigerators and ovens.
RFS’ short-term debt, backed by consumer loans, has the highest credit rating from Standard & Poor’s, making it cheaper for it to borrow than for Fisher & Paykel, which is not rated.
Andrew Michl, who manages RFS securities worth $US1.2 billion at ING New Zealand, said: “Investors tend to like the higher credit rating; consequently, companies are able to issue [debt] at very tight margins.
“Now that the group is a larger size, it makes sense to re-look at all their options.”
So-called asset-backed securities are considered by investors to be more secure and often have higher credit ratings than unsecured debt, because investors rely on dedicated payment streams from the underlying assets to be repaid, rather than on a company’s promise to pay.
RFS sells commercial paper – securities typically maturing in 90 days or 180 days – under a $600 million program.
The debt backed by consumer loans has Standard & Poor’s highest short-term rating of A-1+.
RFS offered to sell $40 million of 91-day commercial paper on Friday at a weighted average interest rate of 5.304%; 2.4 basis points above the bank-bill rate, according to ANZ Bank, which arranged the sale.
The debt was used to replace maturing commercial paper, ANZ Bank said. RFS has about $300 million of securities outstanding.
Company figures show FPF had about $253 million of consumer loans as at September 30.
It finances most of its lending by selling debt securities, known as debenture stock, to individual investors, according to the company’s website.
On Monday, it offered an interest rate of 5.5% for three-month debentures on investments of $50,000 or more.
Excluding brokerage fees, the company would have saved $98 annual interest on each $50,000 of debt by selling the asset-backed commercial paper.
FPF’s earnings surged 26% last year to $5.4 million, according to a prospectus the company released in August for the sale of $150 million of debentures.
Helping boost demand for consumer credit, surging house prices, and the construction of new homes to meet demand from migrants, has spurred sales of home appliances.
Retail sales rose 1.6% in October; the biggest gain in 18 months, while building approvals jumped 13%.
Shares of Appliances have soared 57% this year.
Last month, the company estimated it had as much as 60% of New Zealand’s market for home appliances, and as much as a quarter of Australia’s.
Debt backed by financial assets, including consumer loans, is less likely to be in default on payments than unsecured corporate debt, according to a Moody’s Investors Service study released this month.
FPF is New Zealand’s sixth-largest finance company. – Bloomberg
From odt.co.nz