However, S&P also affirmed sister company Quest Insurance's rating at "CC" with a positive outlook.

The downgrade comes as no surprise because S&P warned of the cut on March 18 when it lowered both companies' ratings from "CCC."

"The rating action follows shareholder and subordinated noteholder approval on March 31 to convert existing debt interests to equity which, in our view, constitutes a distressed exchange considering the conversion price is higher than the current market value of shares and noting the limited liquidity of Geneva's shares," the international ratings agency says.

Holders of $4.4 million of subordinated notes voted on March 31 to convert every $1,000 face value of their notes to 20,000 shares at an assumed five cents per share issue price because the alternative was receivership, under which they would receive nothing.

The shares last traded yesterday at 1.6 cents and are being bid lower.

Geneva's rating will revert to a level no higher than "CCC" after further discussions with Geneva's management and S&P's analysis, "including an evaluation of its prospects of operating as a viable entity in the future," says S&P credit analyst Peter Sikora

Quest's rating is likely to be the same as Geneva's "given its role within the group as a captive financial insurer," Sikora says.