Wellington, Oct 22 NZPA - Allied Farmers is blaming tough trading conditions for a breach of its banking covenants in the September quarter.

The company had experienced tough trading conditions for a number of months and was carefully examining how it could improve its operating performance, chairman John Loughlin said today.

"The trading conditions have resulted in the company breaching banking covenants for the September quarter."

Allied Farmers had discussed the situation with bank Westpac, which had granted a waiver to the covenant breach and confirmed it would continue to provide banking support under terms and conditions agreed in August.

Farmers were continuing to take a cautious approach to spending, Mr Loughlin said.

While an increased payout forecast from Fonterra was welcome news, it was likely to take some time to flow down into the wider rural economy.

Allied Farmers also said that in the past few months, it had been talking to entities in the rural and finance sectors about "achieving consolidation utilising Allied Farmers status as an NZX listed company".

Those discussions were continuing and the company was aware of opportunities in the current environment involving capital raising and the potential for securitisation, the company said.

Following its disappointing 2009 result, Allied Farmers was undertaking an extensive review of its structure, market presence and operations.

Led by managing director Rob Alloway, the company was looking at ways to improve operating performance and market share in its two key rural and financial services businesses.

In the year to June, Allied Farmers reported a bottom line loss of $33.3 million after a $20.5m writedown on the value of Allied Nationwide Finance. The loss compared to a $2.37m profit in the same period last year.

At the start of October, the company also announced it had secured up to $7m of new equity funding from a "large professional investor" not otherwise associated with the company.

Today Allied Farmers said it was continuing talks around the appropriate structure for the $7m equity injection and expected to be in a position to release details shortly.

Allied Farmers shares closed at 28c yesterday, down from a year high of $1.08 a year ago and just above the year low of 24c in early September.