Standard & Poor's has downgraded the credit rating of South Canterbury Finance in the wake of businessman Allan Hubbard's troubles.
The international credit rating agency lowered its long term rating from B plus to B minus, and its short term rating to C.
It warns further downgrades can't be ruled out.
Standard & Poor's says the imposition of statutory management is likely to erode investor confidence in South Canterbury Finance and may delay plans to attract much-needed capital to bolster the lender's financial position.
A C rating is defined as a firm being vulnerable, and dependent on favourable business and economic conditions to meet its financial commitments.
Standard & Poor's says South Canterbury Finance's long term rating could fall to CCC if investors shun the lender, or fresh credit concerns emerge in the next few weeks.
South Canterbury Finance has about 30,000 investors owed $1.3 billion.
Prospectus woes
The downgrade has forced South Canterbury to withdraw its investment prospectus, for the second time, in order to update the new credit ratings.
The Government on Sunday put the Mr Hubbard and his wife Margaret Hubbard under statutory management along with his investment firm Aorangi Securities and seven charitable trusts, prompting the first revision of the prospectus.
Aorangi Securities is also under investigation for alleged fraud.
South Canterbury Finance itself is not affected by the statutory management move.
South Canterbury Finance has $519 million in secured debenture stock maturing in October, and its chief executive Sandy Maier says a healthy number of investors had been rolling over their investments.
Treasury has confirmed eligible depositors in South Canterbury Finance remain covered by the Crown's retail deposit guarantee scheme.
Separately, Mr Hubbard has said he hopes to confirm a deal with an overseas firm that will inject capital into South Canterbury Finance by the end of the month.
The company has been rebuilding its financial position after a number of bad loans threatened its survival.
