FNFC refinances pounds 1.3bn bank debts and reduces losses: Consumer credit arm returns to profit and dividend is paid for first time in two years

FIRST National Finance Corporation, the troubled consumer finance group, yesterday announced that it had refinanced its entire pounds 1.3bn bank debts and had made a vastly reduced loss for the six months to 30 April 1993, which enabled it to pay a dividend for the first time in two years.

The stock market welcomed the news and the shares rose 5p to 90p, and later eased back to close at 88p.

The company, which specialises in second mortgages and home improvement loans, made a pre-tax loss for the half-year of pounds 3.4m. This was down from a loss of pounds 39.6m in the same period last year and a loss of pounds 17.4m in the immediately preceding six months.

The core consumer credit division enjoyed profits of pounds 10.4m compared with a loss of pounds 12.8m last time, although this half's figure was flattered by a one- off profit of pounds 3.9m due to the company buying back some of its own debt.

Martin Mays-Smith, chairman, said the two best pieces of news for the company would be a cut in interest rates and a revival in the housing market. Previous rate cuts and falling bad debt provisions did much to boost the consumer credit division's profits in the six months to April, he said.

The commercial lending division, by contrast, is still hamstrung by bad debt problems, due largely to its property lending. No new loans are being made and the loan book is being wound down over five years. The division made a pre-tax loss of pounds 6m, up on the pounds 5.5m loss in the same period last year, but an improvement on the pounds 13.5m loss in the previous six months.

FNFC was forced to refinance all its bank borrowings because it discovered a number of 'technical' breaches in its covenants earlier in the year, and because a pounds 100m financing proposal had been poorly received by the banks. The breaches related to clauses in covenants signed by the First National Bank subsidiary in 1987 which forbade its own subsidiaries from issuing guarantees. One subsidiary broke this rule in 1988, but the mistake was only discovered by the company earlier this year.

Tim Ingram, finance director, explained: 'This made our bank loans technically immediately repayable. So we had to go for a refinancing with our 107 banks, which we completed in a very tight timetable of five months.'

The refinancing will add 0.8 per cent to FNFC's borrowing costs, and the additional expense will be written down over four years. Refinancing costs incurred up to 30 April 1993 totalled pounds 1.5m.

The covenants problem delayed a pounds 150m securitisation of FNFC's consumer loans. Yesterday Mr Ingram said it could now press on with a pounds 150m- pounds 200m issue soon.

Mr Mays-Smith said that FNFC was sticking to the pledge made when it launched a pounds 45.8m rights issue in January that it would pay a 0.5p interim dividend now and a final payment of 1.0p.

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