Finance companies: Opening the freezer

By Tamsyn Parker

Firms were given a break when investors allowed them to delay payments. So how are they faring now, asks Tamsyn Parker

St Laurence has paid back around $10 million of $250 million owed. Photo / Brett Phibbs
St Laurence has paid back around $10 million of $250 million owed. Photo / Brett Phibbs

When Geneva Finance asked its 3000 investors for a six-month freeze on their money in October 2007 it became the first finance company to ask investors to accept a moratorium.

What followed was an avalanche of other finance companies, mortgage and property funds who asked investors to vote for a delayed repayment scheme or face the possibility of receivership.

Two-and-half years later, four moratoriums have came unstuck and others are on shaky legs.

OPI Pacific Finance went from frozen to receivership last September, having paid back just 22c in the dollar to its 12,000 investors - most of which was received at the start of the moratorium in May 2008.

Its sister company Boston Finance followed suit in November, just weeks after it had hoped to repay all of the $38.5 million it owed to its 1300 investors.

Just 37c in the dollar was repaid under the moratorium and a maximum of 70c is expected to be achieved under receivership.

Hanover Finance and United Finance combined were the largest moratorium, with close to $500 million frozen. That ended in December, when the assets were sold to Allied Farmers for about $396 million.

The value has since been written down by $220 million.

Last week Strategic Finance joined the queue of moratoriums going into receivership, having paid back nothing to its 13,000 debenture holders.

Eight finance companies remain frozen and not all is going to plan.

Property Finance Securities, which had to go through two moratorium votes, failed to meet its latest payment in January and Geneva will take a vote to investors on March 29 asking them to wait longer for full repayment.

Investor advocate Suzanne Edmonds says moratoriums have been a "nightmare" for many.

"Moratoriums were never in the best interests of investors. Moratoriums were only ever going to be a farce."

She says many investors went into moratoriums on the advice of their financial advisers and others just followed like sheep.

"They had the choice of that or a receivership. The directors have looked after themselves and their shareholders. But what about the investors?"

But Roger Wallis, a corporate lawyer with Chapman Tripp who has helped orchestrate many of the moratoriums, does not believe there have been any failures so far.

"In my eyes success is not about getting all the money back, it's about getting the best outcome."

Wallis says many moratoriums gave projections on payments, not guarantees, and in many cases investors were told more information about a company in the moratorium documents than in the original investment prospectus.

He also points to the track record of finance companies that did go straight to receivership.

Bridgecorp has paid back nothing to investors and Capital & Merchant has only paid back US financier Fortress, leaving mums and dads out of pocket.

He says those who took the moratorium choice just to delay facing the fact that they would not get all of their money back were fooling themselves.

"At the end of the day that is their choice. The moratorium is not a guarantee of 100 per cent in the dollar."

FROZEN FINANCE COMPANIES

DORCHESTER FINANCE
Froze: June, 2008
Owed: $168 million
Paid back so far: $71.4 million
Total payback time: No timeframe

Dorchester Pacific chairman Barry Graham said the company's moratorium process was on track, with another 7.5c payment due at the end of this month that would bring total repayments to 50c in the dollar.

"The directors ... are convinced that the underlying businesses of Dorchester are sound and have potential," Graham said.

Dorchester planned to mail notices to investors by the end of April, including a capital reconstruction proposal, and to hold investor meetings in mid-May, followed by meetings with shareholders.

"I would say June, July we would be looking to have the recapitalisation in place."

The proposal from Dorchester had four parts including 50c in cash, transfer of ownership to investors of four hotel properties, interest-earning three-year bonds and shares in Dorchester Pacific.

Investors would be given 36 million shares, giving them half the equity in the company, plus further options.

"Just based on the cash and the hotel properties and the bond that will return to investors, my recollection is, 87 to 91c," Graham said.

"They [the shares] are worth 10c now they could be worth a lot more into the future, just depends when they choose to sell the shares."

The moratorium process had been right for Dorchester, Graham said.

"It has enabled us to just work our way through the more difficult loans and our experience on that has been pretty good because we've achieved better realisations," he said.

"The option of course was receivership and on the figures we've done and the advice we've had we expect that the returns under receivership would have been considerably less."

ST LAURENCE
Froze: June 2008
Owed: $250 million to 9000 investors
Paid back so far: 8c in the dollar to debenture holders, 4c to Capital noteholders
Total payback time: 13 years

Managing director Kevin Podmore did not return calls from the Herald asking for an update on the company's moratorium.

Wellington-based property finance company St Laurence has the longest repayment period of all those in moratorium at 13 years and has paid back about $10 million so far.

The company reached an agreement with its investors in December 2008 and at the time Podmore said he hoped to pay investors back 100 per cent of their principal as well as interest.

Its plan includes a pledge by Podmore and associated parties to tip in up to $20 million of their own money to help make up any shortfall as well as $10 million in assets to boost the company's balance sheets.

A report by PricewaterhouseCoopers at the time told investors the put option, guarantee, and capital injection had "questionable value" given it included assets such as a stake in Auckland's Hilton Hotel, whose value was by no means rock solid.

GENEVA FINANCE
Froze: October 2007
Owed: $142 million to 3000 investors
Paid back so far: 64.5c in dollar to debenture holders, 14.2c in dollar to subordinated noteholders
Total payback time: Currently by September 2012. Vote on March 29 to extend to March 2015 for debenture holders and April 2015 for noteholders

Geneva Finance's initial six-month moratorium altered in July 2008 when it became partially listed on the NZAX.

Since then it has paid back $15.05 million of the $43 million owed to Bank of Scotland International. Debenture holders initially owed $99 million have received 50 per cent of their principal investment back as well as interest at an average of 11.14 per cent.

Subordinated noteholders owed $11.5 million have received no principal back so far but are being paid interest at an average rate of 13.25 per cent.

Debenture holders are due to receive another 10 per cent back on March 31 and were supposed to be paid in full by September 2012.

But under a new proposal being put to investors on March 29 the BOS International will delay receiving its full repayment from April 2011 to April 2015.

Debenture holders are forecast to be repaid in full by March 2015 and subordinated noteholders are forecast to be repaid 85 per cent of their money by April 2015.

Standard and Poor's recently downgraded Geneva from CCC to CC on the proposed plan which comes after the finance company renegotiated its funding with BOS International.

BENEFICIAL FINANCE
Froze: October 2007
Owed: $24.2 million to 497 investors
Paid back so far: $14.985 million
Total payback time: No timeframe

Chairman Mervyn Oldham says Beneficial Finance has been paying back its investors at 5 per cent of their principal plus interest every quarter since the company went into moratorium in October 2007.

It has met every payment so far and while the moratorium did not have an end date, Oldham said he was confident of being able to meet all payments. "We are not like Strategic, we are a consumer lender. Our average loan is just $3500 so we have a very big spread. It's not all in a hole in the ground."

The company was also well-capitalised and did not have issues with related-party loans, he said. Oldham said the company only went into a moratorium because of a "horrendous" run on people wanting to cash up their debentures.

Oldham said the company had acquired an exemption from getting a credit rating under the new rules because it has liabilities under $20 million and it is now considering when to start borrowing from the public again.

"We look at the market all the time. But then some more mud and dirt hits."

He reckons it won't be back to normal for another couple of years until the trading banks start lending to businesses again. He says the Government's retail deposit guarantee, while necessary, has created a distortion in the market making it harder for companies who have survived to raise money. "The sooner it is gone the better."

NORTH SOUTH FINANCE
Froze: June, 2008
Owed: $102 million.
Paid back so far: Approx $54 million
Total payback time: No timeframe

North South Finance chairman Rick Bettle said the company was on target to pay back about $73 million of funds owed to investors.

"Obviously it's getting harder," Bettle said. "When you're trying to collect loans your first ones are the easy ones, you always get the low hanging fruit first."

The environment had got harder since the company started the moratorium, he said.

Moratorium had been the right choice, Bettle said.

"Because the costs are just so much lower, the manager who's collecting is also the same guy that was involved in a lot of the lending, they've got all the corporate history."

Bettle thought the company would hit its repayment target before the end of the moratorium.

"If we keep going in the tack we're going we'll hit it well before."

PROPERTY FINANCE SECURITIES
Froze: Went into receivership August 2007, first moratorium began February 2008, failed in December 2008. Second moratorium plan approved June 2009
Owed: $79 million to 4000 investors
Paid back so far: 14c in the dollar
Total payback time: Initially two years, now five years

Property Finance Securities has had a difficult time sticking to its moratorium plans.

Its first moratorium failed after the company was unable to make a $15.5 million payment in full at the end of December 2007.

But it doesn't seem like its second moratorium is proving much more successful.

Managing director Darryl Queen did not return calls from the Herald but the latest update on its website shows the company was unable to make any payment on its last deadline of January 15 because of "delays in a number of cash receipts" and insufficient cashflow. Its next payment is due on April 15.

Under the current moratorium it doesn't have to make a set payment. Last month the company was also fined $12,500 and publicly censured by the NZ Market Disciplinary Tribunal for failing to file its half-year results by June 12, 2009 and then failing to file its 2009 annual report by July 31, 2009.

STRUCTURED FINANCE
Froze: May 2009
Owed: $33 million to 172 investors
Paid back so far: Nothing, first payment not due until September 30
Total payback time: October, 2011 or 2012 depending if money is available

Auckland property lender Structured Finance was the last company to go into a moratorium and has yet to begin paying money back to its investors.

The first repayment of 10c in the dollar is due in September with a further 5c in the dollar due in March next year.

Another 45c is forecast to be repaid by October 2011 but directors have the option of extending that to October 2012 if they wish to without having to go back to investors to get permission.

Structured Finance director Martyn Reesby, whose company Reesby & Co is getting paid $13,125 per month to manage the wind-down, was reluctant to talk to the Herald about whether it was confident of making the first payment.

"You are asking for information that is not appropriate to be given out - the information needs to be directed via the trustee."

Reesby said the company only went into moratorium in December and it had not given any update to investors since then, although it did report monthly to its trustee.

Perpetual Trust's Matthew Lancaster said the company was on track and could make an early repayment if it had the money sooner. Only 60c in the dollar is expected to be paid back to investors. Unlike some other companies a default on payment does not result in a receiver being called in.

ORANGE FINANCE

Auckland property lender Orange Finance stopped repaying maturing debentures and interest from December, 2009 after the property market squeeze had put some of the company's largest loans at risk.

As at August 2009 the company's debenture stock investors were owed $23.2 million and the Herald understands some repayments have been made since moratorium.

Further details could not be confirmed by deadline.

FROZEN MORTGAGE/PROPERTY FUNDS

IMP DIVERSIFIED INCOME FUND
Froze: June, 2008
Owed: $15.8 million.
Paid back so far: $7.9 million
Total payback time: No timeframe

IMP Diversified Income Fund has said it is unlikely to make a full repayment because the difficult domestic environment and global recession have made it harder to sell investments for full value.

The IMP moratorium ends in November and the company has not put a figure on the potential final total pay back to investors.

Chairman and former Finance Minister Ruth Richardson said the moratorium represented the best path to realise value for investors.

"The ultimate payout will be a function of the value we can secure from our last substantial portfolio position in firm that is trading profitably," Richardson said.

"We have the expectation that we are likely to see a return of the substantial majority, but not all, of the debenture funds, and our continued conduct of the moratorium during this final period is driven by the desire to maximise value."

GUARDIAN MORTGAGE FUND
Froze: November 2008
Owed: $249 million to 3700 investors
Paid back so far: $124.5 million
Total payback time: No timeframe

Investors in the Guardian Mortgage Fund got another 5 per cent repayment of capital this week, bringing the total repaid so far to 50 per cent since March last year.

Guardian Trust said it was not possible to speculate on the total return because of continuing fluctuations in the market.

"Our priority has always been to protect investor funds," the company said. "We anticipate the wind-up process will take two to three years."

Guardian Trust said it planned to make partial capital repayments on a quarterly basis, dependent on cash available in the fund, and would provide an update of the next repayment date in May.

AXA MD FUND
Froze: October 2008 /August 2008
Owed: $225 million to approx 3700 investors / $181.8 million to approx 2900 investors
Paid back so far: $110 million / $26 million
Total payback time: In full in four to five years.

AXA chief executive Ralph Stewart said the company's Mortgage Distribution Fund had been frozen in October 2008 owing about $225 million of investor funds of which $110 million had been paid back, with another 5 per cent due to be paid back next month.

The fund, which was largely involved with residential mortgages, still had $85 million in mortgages to be repaid with the last due to mature in 2014.

AXA's Mortgage Backed Bonds company had paid back 15 per cent of the capital since 2009 and would also pay back another 5 per cent next in April, with the last mortgage due to mature in 2013.

Stewart said Mortgage Backed Bonds had $136 million in mortgages outstanding "and we continue to manage them down to maturity".

"The environment in New Zealand I don't think has changed an awful lot since mid 2009 however our loan book was always pretty conservative with a loan to value ratio of just under 60 per cent," Stewart said. "So now it's just a case of remaining close to the borrowers and ensuring they continue to make their repayments until their mortgages mature."

TOWER MORTGAGEPLUS FUND
Froze: April 2008
Owed: $242 million to 5700 investors
Paid back so far: 75 per cent of capital
Total payback time: No timeframe, but 100 per cent of investors capital may never be recovered. The Serious Fraud Office is also investigating a group of 16 loans worth $33 million.

AMP NZ PROPERTY FUND
Froze: August 2008
Owed: $292 million owed to 25 large institutional investors including superannuation funds and trust funds
Paid back so far: Nothing
Total payback time: Unknown. The company says it is working hard on restoring liquidity.

TOTARA FIRST MORTGAGE FUND
Froze: July 2008
Owed: $60 million to 2400 investors
Paid back so far: At least $17 million
Total payback time: Unknown.

- NZ Herald

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