"The counterparty credit ratings on Avanti reflect the company's moderate liquidity and susceptibility to funding pressures, stemming from a concentrated funding base that is heavily reliant on ongoing debenture investor support and access to bank funding from sister company Galatos Finance," S&P credit analyst Peter Sikora says.

"That said, Avanti has enjoyed good support from its debenture investor base, on the back of a long-standing relationship with many investors and its good operating performance, and the company has reasonable capacity to manage its liquidity position in the short term if its debenture-reinvestment experience were to materially deteriorate."

Although Avanti's credit-loss experience has been well managed to date, the company's credit profile is moderated by the high-risk profile of its loan-receivables portfolio, which exhibits a high level of loan arrears. 

Favourable features of Avanti's credit profile include its strong capital-adequacy ratio and interest margins, which provide good capacity for the company to absorb materially higher credit losses.

S&P says Avanti's management team and risk-management framework are considered sound and positive credit factors, although the company does have a high reliance on its two key shareholders, Glenn Hawkins and Steve Eltringham..

"The negative rating outlook recognises Standard & Poor's current negative bias on the New Zealand finance-company sector, uncertainty around Avanti's ability to manage its liquidity position through 2010 (stemming from changes to the New Zealand government's deposit-guarantee scheme and the imposition of other regulatory requirements on New Zealand nonbank deposit-taking companies), and an expectation that profitability may come under pressure from some further contraction in interest margins and potentially higher credit costs," Sikora said.