KEY POINTS:
One of the biggest casualties of the finance company collapse, Hanover Finance, has unveiled a five-year plan to pay back 100 per cent of depositors' principal.
It says it will keep trading, with the same management and even start lending money again once it has money put aside
for two quarterly payments to investors.
Hotchin said the asset quality and loan book meant that secured creditors should get 100 per cent of their principal back by the end of 2013.
The Eric Watson and Mark Hotchin owned companies Hanover and United Finance stopped repaying principal and interest in late July to 16,500 investors owed $554 million, citing the collapse of the property development market and plummeting reinvestment rates.
If this new plan is approved, Hanover says that secured investors in Hanover Finance and United Finance will have all their principal repaid within five years. They will start receiving quarterly repayments in March next year.
No interest will be paid.
Suzanne Edmonds, who has been leading consumer opposition to many of the tactics used by finance companies and the failed Blue Chip property investment operation, said initial reaction to today's Hanover repayment plan was mixed.
"While investors want to retrieve their investment funds as soon as possible, investors ongoing concerns relate to the management of the Hanover restructure. In October, Hanover investors who are EUFA (Exposing Unacceptable Financial Advice) members, unanimously supported a request by EUFA executive to have representation on the Hanover board, in a moratorium proposal."
Hanover had an independent Director, Greg Muir, said Edmonds, "&but as a friendly independent director the company still hit troubles including Commerce Commission Investigation. Muir has gone on record constantly defending Hanover which has shown he does not hold a true and honest independent position."
Edmonds said Hanover investors want a representative on the board to ensure transparency and true independence.
"If the trustees have had a "number of interest groups" claiming to represent investors and the Trustees can not make appointments to represent such interest, one has to wonder if moratorium will be transparent, genuine and fool-proof."
Hanover chairman Greg Muir said he believed the proposal was the best way forward for investors in the context of the current turmoil in financial markets both locally and globally.
"Our management and board have worked closely with the shareholders, trustees and advisors to develop a restructuring plan that enables repayments to be made to investors over a realistic timeframe given current market conditions. It is a plan that offers investors the chance of maximising their recovery of principal." he said.
"We are putting this proposal forward in the belief that the liquidity difficulties being experienced throughout the financial sector will correct over time. Our objective then is to ensure that all borrowers, lenders and equity providers are able to survive in the interim and be there when the markets correct."
The same board and management will stay in place under the plan. They intend to start new lending - once enough money for two quarters of future payments to debenture holders is "quarantined" and ready to pay out.
News is not so good for the 1,125 subordinated investors in Hanover Finance and Hanover Capital. They will receive 50 per cent of their capital on December 31 2013.
For the year ended 2009, secured depositors will have received 8 per cent of their capital, another 10 per cent by the end of 2010, then 12 per cent by the end of 2011. The big payouts come in years four and five of the plan, with 35 per cent of the capital being paid back in each of these years.
Hanover's secured depositors are owed $462m, United owes $64.7m.
The plan is going to be put to investors for approval on December 9 this year.
Company owners Mark Hotchin and Eric Watson are putting $96m into the plan, this is made up of $36m in cash, with $10m available for principal payments as required.
The company says independent appraisals commissioned by the company's trustees decided that the plan was "likely to provide a better outcome than receivership."
Under the plan, Hanover will continue to trade as a going concern, though there will be a "modified governance regime". This new regime will include an independent director and chairman, along with a group credit and investments committee. An independent director will chair the group audit, risk and compliance committee. There will also be "modified trustee supervision/ monthly reporting".
If the company went into receivership, said Hanover, there would be a breakup and sale in the "current envirionment". There would be no increased shareholder commitment, the likelihood of higher costs and borrowers seeking lower repayment levels. The receiver would have full control of the company.
For the plan to succeed,75 per cent of those voting need to approve the plan. Hanover is going on a nationwide roadshow between now and the vote, hoping to drum up support for the repayment proposal.
Hanover Investors:
- Hanover Finance Limited - approximately 13,800 secured depositors with $485.1 million of secured deposits.
- United Finance Limited - approximately 2,575 secured depositors with $67.5 million of secured deposits.
- Hanover Finance Limited - approximately 125 subordinated noteholders with $2.2 million of unsecured notes.
- Hanover Capital Limited - approximately 1130 preferential bondholders with $24.2 million of bonds.
Details of the shareholders' support package include:
- $36 million of cash, being an immediate $10 million to be held in a solicitor's trust account and applied to principal payment obligations when and if required and $26 million in cash to be applied to debt reduction in the Axis Property Group (see below);
- Commitment to provide a further $20 million by way of personal guarantees from the shareholders that becomes available if required to meet the repayment schedule from 2010 onwards; and
- $40 million of equity in a portfolio of property assets in Axis Property Group including sections and development land at Matarangi Beach in Coromandel and property in Queenstown, Christchurch and Auckland.
HERALD ONLINE
Full details of the payback plan are available at:Hanover Finance
