KEY POINTS:
Hanover Finance's Debt Restructuring Proposal has prompted a scathing response in some quarters since it was unveiled late last month with one or two commentators in the blogosphere taking a distinctly scatological tone.
Stock Takes reckons there are elements of the proposal bound to raise eyebrows. What's more,
as often happens in such cases, some of those in the vicinity of ground zero are nonchalantly edging away in what may seem like an attempt to put the matter behind them. Chairman Greg Muir is off and Hanover's former brushfire-fighter extraordinaire Bruce Gordon didn't even wait for the proposal to drop before departing.
So what's wrong with the proposal? Among other things, the fact that it takes five years for debenture investors to get all their money back, with a pitifully small trickle of funds for the first couple of years.
Of course, even if investors do receive all the cash back by the end of 2013, it's going to be worth a hell of a lot less than it was when Hanover first received it.
In its evaluation of the proposal, PricewaterhouseCoopers (PwC) has estimated the Net Present Value (NPV) of 100 per cent of debenture investors' principal repaid over the five-year period - ie, what it is worth in today's money - is just 55c in the dollar at best.
PwC's best-case scenario under a receivership would see secured investors receive 80.9c in the dollar back, a sum it estimates has an NPV of 50c.
So, as PwC repeatedly states in its report, the proposal offers debenture investors "a greater prospect of recovering all or a larger part of their investment compared to an immediate receivership" - but only just.
5c WORTH
What might be galling to many Hanover investors is that while, all going well, they will receive what amounts to just over half their cash back in real terms, Hanover will still continue lending.
There are restrictions on new lending but the chief one appears to be that the company keeps on hand a cash buffer equivalent to six months worth of repayments to debenture investors. Given those payments are, initially at least, just 2c in the dollar a quarter, this is not a huge obstacle.
For the first six months of the restructuring period, the buffer will be about $20 million. Meanwhile, Hotchin and his management team remain in charge with, initially at least, a dearth of independent oversight.
"It would have been preferable to have new independent directors committed to joining the board from the outset," says PwC, "although there are understandable difficulties in securing suitable people presently, given the company's current circumstances."
Another element of the deal PwC finds "less than ideal" is the level of financial support from Hotchin and Watson.
Alas, what has been offered is the maximum Hotchin and Watson believe is "commercially justified given all the circumstances", says PwC.
All going well, Hanover's secured investors will receive the equivalent of about half their money back, while Hotchin and Watson retain control of the company which will continue to operate as a going concern and presumably generate profit, some of which, according to a complex arrangement, might find its way to investors.
If investors reject the proposal on December 9, the company will go into receivership, investors will get not much less money back than they would under the restructuring proposal and Hotchin and Watson lose their company whose somewhat murky affairs will then be exposed to sunlight.
Some investors may feel that's worth forgoing 5c in the dollar for in itself.
JUMPED, NOT PUSHED
It was red faces for market NZX Regulation and brokerage Macquarie Equities yesterday as NZXR issued a correction to a previous announcement regarding the breach of participant rules by a Macquarie adviser.
The original statement from NZXR on Tuesday said the breach "related to clients of a single NZX associate adviser employed by the respondent (Macquarie), who has since been dismissed".
Yesterday, NZXR said the adviser referred to had actually tendered their resignation, which was accepted.
"Accordingly, the NZX associate adviser was not dismissed as stated in the announcement."
While the particular adviser was not named, they could easily have been identified through information contained in a number of announcements issued by NZXR on Tuesday.
There's a difference between dismissal and resignation and the difference is an important one, Stock Takes assumes, for the reputation of the adviser involved.
NZX says the erroneous statement was agreed between NZX Regulation and Macquarie and then approved by NZX Discipline.
"After the statement had been released to the market Macquarie identified an error, so a further announcement (again agreed between NZX Regulation and Macquarie and approved by NZX Discipline) was made to correct this."
OILY RAG
Meanwhile, out in the unregistered, unregulated wilderness, the Unlisted Market is also shrinking, although manager Bruce Cossill says the decline in market cap over the past 18 month has been in the order of about 20 per cent.
Unlisted's market cap was about $1.1 billion a year or so ago and is now around the $900 million mark, although most of the decline is because of the departure of Open Country Cheese in October.
Cossill also says trading volumes (such as they are) are also down on the market, which recently celebrated its fifth birthday.
The market is showing some signs of life, however, with "super sniffer" company Syft Technologies yesterday releasing its prospectus for a $5 million rights issue.
New chairman Ruth Richardson said the company had now reached the point where it could be confident of realising strong growth over the next few years "and deliver on our commitment to achieving a significant increase in shareholder value".
"The number and quality of established sales and prospects in the near future far exceeds anything achieved previously."
Syft shares last changed hands late last month for 7c.
