“The challenge for Heartland is … to maintain its reinvestment rate and attract retail investors to its asset liability mismatch,” says Forsyth Barr analyst Matt Sturmer.

“We will take greater comfort when Heartland manages itself through the next six months.”

In the meantime, Sturmer has a “hold” recommendation on Heartland's $104.2 million of NZX-listed bonds.

His caution is despite Heartland strengthening its balance sheet with last year's $55 million capital raising and Standard & Poor's upgrade late last year of the outlook on its “BBB-” rating from negative to stable.

“The nature of Heartland's business means the refinancing risk in ongoing,” he says.

“In the near term, Heartland has a $50 million bank facility due for repayment and a large portion of fixed term deposits due to mature that will require reinvestment rates to be maintained at the current about 80% level.”

More than 60%, or $1.1 billion, or Heartland's funding is on call or has a maturity of less than six months and nearly 85% of its funding is due within one year, Sturmer says.

That compares with 40% of its assets (or loans) maturing in one year, “creating and asset/liability mismatch. This places significant importance on Heartland's ability to secure and maintain high reinvestment rates.”

Meanwhile First New Zealand Capital has the bonds in its model debt portfolio because of their yield and investment-grade credit rating.