A sharp writedown in the value of Hanover and United assets has cast doubts over the fate of a big chunk of borrowings by Allied Farmers Group, a New Zealand rural services and finance company. The writedown also raises questions over the capital Allied indicated it would provide to its finance subsidiary Allied Nationwide.Last week, Allied Farmers announced a large drop in the value of assets it acquired from Hanover and United Finance in December.  The fair value of the assets were determined at NZ$175.5 million in December 2009 and lowered to NZ$124 million by May and have now been assessed to be worth only NZ$94.3 million.Less known is the fact that Allied has borrowings of NZ$46 million that are secured over these assets. As of December 2009, these loans were classified as current because Allied was in the process of finalising the terms of these borrowings. There has been no update on whether the terms have been finalised, and more importantly what those terms are. The NZ$46 million comprises two portions. The larger one is a NZ$30.8 million borrowing from a bank, while the balance of NZ$15 million is from financial institutions. It's unclear how many institutions are involved.Allied Farmers made this borrowing through its newly established division, Allied Farmers Investments. Allied recently announced that it had extended the terms of its borrowings from Westpac. These are separate loans comprising NZ$19.5 million and an overdraft facility of NZ$2.5 million.  These loans have covenants on minimum bank funding cost cover, minimum debt funding cost cover, and maximum total leverage ratio that will come into effect on 1 October after the suspension period is over.The fall in the value of Hanover and United assets could have a direct bearing on Allied Nationwide, the finance subsidiary. The parent had indicated it would provide the company with the capital required to meet the Reserve Bank of New Zealand's new regulations that come into effect in December. The capital would be infused in the form of cash or transfer of loans acquired from Hanover and United. With the writedown in the value of these assets, and Allied Farmer's already delicate liquidity position, it may seem both the options are not viable at this stage.Standard & Poor's last week cut the credit rating of Allied Nationwide to CC from B, citing a material weakening in its liquidity and cash position. The new rating recognises a strong chance that the company could default on its obligations within six months. S&P also put Allied Nationwide on a CreditWatch negative, which implies 50 per cent chance of another downgrade within the next three months.Allied Nationwide is not only dependent on its parent for capital, it is also owed NZ$20.8 million under a debt factoring arrangement, and another NZ$3.0 million, apart from the amount owed to it under the credit enhancement facility. Allied Nationwide is also party to a securitisation arrangement with Speirs Securities that gives the group access to competitively priced funding from money markets via commercial paper.