Fisher and Paykel Finance Ltd Debentures

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I know they're not traded on the NZDX but I did some analysis of the financial accounts for F+P Finance (for the 6 mths ended 30/09/2009) and for UDC for 12 mths as at the same. It didnt matter about the different time lengths to me as I was interested in the ratios in the lower section.

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full report here in txt format... quite difficult to read like this but I cant get the formatted document online.

[Enumerate]

I assume that your conclusion is that F&P Finance is significantly better than UDC in terms of interest and capital repayment counterparty risk?

Nice summary - including the analysis of the Trust Deed. Very nice work - much appreciated!

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wow
I'm amazed someone read it !
yes my conclusion was they both fully qualify as non-investment grade debt , that is they are junk and "The return they offer relative to the risk of default is simply not sufficient to justify itself...when compared with the much higher security/lower risk available from other organizations offerings."
But of the two F+P has better fundamentals notwithstanding that UDC has a much higher rating from S+P. The S+P rating of UDC is over three years old and in this new post GFC era completely misleading.

[Snapper]

"But of the two F+P has better fundamentals notwithstanding that UDC has a much higher rating from S+P. The S+P rating of UDC is over three years old and in this new post GFC era completely misleading."

UDC only get that rating on the strength of its parent, ANZ. With all due respect to F & P's fundamentals I think that I'd have a better chance of getting my capital back from UDC if things go tits up again.

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is there an explicit guarantee for UDC from ANZ, Snapper?
I admint that I didnt do as much research on the nature of the UDC offering as I did with F+P. Unless there is a clear guarantee though the strength of the parent is only of peripheral importance. There isnt one with F+P Finaance from FPA Holdings.
As I ultimately conclude though who would invest at 7 or 7.5 with these two org's when you can get 6.75 from a trading bank or Rabo?

This work was an assignment for my Fundamentals of Investing paper I'm currently doing so I thought I'd throw it out into the public domain for comments.

[Snapper]

Hmm...not too sure about that, but why would S & P give the same rating to UDC as it gives to ANZ if there wasn't? I would look into it a bit more but as I like my fixed interest to be very low risk I probably wouldn't bother with F & P and UDC pays about the same as a bank anyway.

Cheers

[macduffy]

No, there's no explicit guarantee of UDC from ANZ.

Granted, anything's possible but can you really imagine a scenario where UDC could go belly-up and ANZ could remain in business in New Zealand? Or Australia, for that matter.

Despite that, I agree that the risk margin for UDC over banks' rates should be higher.

[Enumerate]

I'm on the other end of the spectrum from Snapper. I like my fixed interest to be risky ... but I demand outsized rewards for this risk.

I don't know if there is a secondary market for F&P or UDC debt. It would be interesting to see how the market values the risk.

I would note that F&P Finance and UDC are both approved institutions in the government retail deposit guarantee scheme ... so, they are both effectively equivalent and equal to the NZ government rating ;)

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theres no real secondary market... trade me?? ;+) as securities they can be transferred to other parties.

yes I mention the govt guarantee in my report. it only lasts this year so is fairly pointless from the 5 year perspective as it would only cover interest during this year. my report was specifically focussing on a 5 year debenture.

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just for the record i got 88% for this assignment and 19th out of 142 so not top of the class but not a bad mark either

[percy]

Well done,thank you for sharing your assignment with us.{We give you higher marks!}

[Alan3285]

just for the record i got 88% for this assignment and 19th out of 142 so not top of the class but not a bad mark either

Congratulations - FWIW I thought it was excellent analysis.

Alan.

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4 exams starting on Saturday finishing on Thursday... i'm officially sweating now !

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got an A- for this paper... the exam was pretty hard actually.

[Alan3285]

Well done - and well deserved from the analysis you did.

Alan.