KEY POINTS:
The involvement of some well respected names in Dominion Finance may help it pitch its case for a moratorium to investors owed more than $250 million.
The NZX listed property financier says it has entered talks with its bankers, auditors and trustees about declaring a moratorium on
debt repayments and interest repayments on over NZ$250 million of debentures in Dominion Finance and North South Finance.
A moratorium would bring the number of finance companies to get into trouble in the last two years to 21 and lift the amount invested in these companies collectively to over NZ$2.25 billion.
Investors are currently expected to lose about NZ$1 billion. The moratorium has been the preferred route in the last year for finance companies in trouble, with Geneva Finance and MFS (now OPI Finance) successfully proposing capital restructures to their debenture investors rather than a receivership.
Lombard Finance tried to impose a moratorium, but its trustee Perpetual Trust refused. Perpetual Trust is also the trustee for Dominion Finance, with Covenant being the Trustee for North South Finance.
Under a moratorium, a finance company would typically play for time to find new capital to keep trading or to run down its loan book in an orderly fashion to maximise returns.
Dominion Finance, which provides finance for residential property developers and others, said the global credit crunch and a collapse of confidence in the finance company sector had forced it to consider a moratorium, along with problems its borrowers were having refinancing or repaying loans.
Dominon's biggest loan was to a residential property developer in Queenstown.
At the end of March, Dominion Finance had 12,970 investors with an average of $21,000 or a total of NZ$276.1 million invested in Dominion Finance and North South Finance. "The Board has today entered into discussions with the bankers, auditors, and Trustee's of DFG and NSFL respectively, with a view to exploring the prospect of those two companies entering into a Moratorium with their respective debentureholders," Dominion Finance said.
"Under the prospective moratorium, DFG and NSFL would seek the suspension of the obligation to make payments to debenture holders for a yet to be determined period of time with a view to enabling those companies the opportunity to restructure in order to alleviate the liquidity pressures and ensure the maximum realisation of investor's investment in DFG and NSFL," it said.
Dominion Finance has expanded quickly since it was bought by its driving forces Terry and Ann Butler, who are still directors and own a combined 61 per cent of the company.
Other prominent shareholders include South Canterbury Finance with 5.2 per cent, South Canterbury's controlling shareholder Alan Hubbard on 2.8 per cent and ACC on 1.7 per cent.
Vance Arkinstall, the chief executive of the Investment Savings and Insurance Association, is a director of Dominion Finance, as is chairman Rick Bettle, who was previously president of the New Zealand Institute of Directors.
CEO Paul Cropp said on May 14 that Dominion Finance could cope with its then debenture reinvestment rate of 25 per cent because it maturing loans would return considerabily more than its maturing debentures.
Dominion Finance only needed to collect on 38 per cent of its maturing loans to pay out its debentures as they matured over the coming year, he said then.
Dominion Finance's market capitalisation approached NZ$200 million in mid 2007 before the credit crunch hit, but its shares have fallen 79 per cent since then to 50 cents yesterday before trading in the shares was halted.
Dominion Finance had two bank funding lines. The biggest was NZ$70 million from HBOS International (Halifax Bank of Scotland) and NZ$20 million from ASB Bank. The finance company was also a major sponsor of the National Basketball League.
The involvement of some well-respected names may help convince some Dominion Finance debenture holders to agree to the company's plans for a moratorium.
One of the most respected finance company players in New Zealand is renowned South Island investor and philanthropist Allan Hubbard. He will personally buy back the 5.2 per cent stake in Dominion Finance that South Canterbury Finance bought in recent years.
South Canterbury Finance is controlled by family interests associated with Hubbard and joined with Hubbard in buying a combined 8 per cent stake in property finance company Dominion Finance.
South Canterbury Finance Chief Financial Officer Graeme Brown told interest.co.nz that Hubbard would personally buy back the stake from South Canterbury at the original cost price.
Dominion Finance's share price on the NZX has fallen 79 per cent in the last year and the purchase price by Hubbard is likely to be higher than the book value of the stake in South Canterbury's report.
One indication that not all finance companies have trouble raising money came through from South Canterbury Finance the same day that Dominion Finance acknowledged it was in trouble.
The South Island firm said it had raised NZ$125 million from a 3 year bond issue at 10.5 per cent that closed over-subscribed.
South Canterbury Chief Financial Officer Graeme Brown that the issue was oversubscribed by around a further NZ$2 million and had to be scaled back slightly.
About 15 per cent of the issue was taken up by institutional investors, which was about the same as for a five year bond issue last year. The initial issue was for NZ$75 million, but South Canterbury had indicated it would accept up to NZ$50 million of oversubscriptions.
"We're very proud of the fact that we can keep issuing into this space," Brown said.
The BBB minus rated bond issue was underwritten and lead managed by Forsyth Barr. It further diversifies the South Island based finance company's funding away from retail debentures. South Canterbury raised US$100 million in the US private placement market earlier this year.
A chronology of the finance company casualty list:
* May 2006: National Finance 2000 went into receivership, holding deposits of $25.5m on behalf of 2026 investors, some of which has been repaid.
* June 2006: Receivership was seen as best way to protect the interests of Provincial Finance debenture holder, who had invested $300m, some of which had been returned to them.
* August 2006: Tauranga-based Western Bay, owing more than $48m to investors, went into receivership. Debenture holders have recovered some of their money.
* July 2007: Specialist property financier Bridgecorp went into receivership, after defaulting on repayments of some term investments due to investors - owing about $500m to 18,000 investors.
* August 2007: Nathans Finance went into receivership, owing $166m to around 6000 investors. Nathans was a wholly owned subsidiary of vending technology company VTL Group Ltd which announced it was insolvent due to a Companies Office investigation of Nathans.
* August 2007: Property Finance, which has debentures of over $80m and loans of over $630m, went into receivership reporting it was in deep trouble and unlikely to be able to honour its debts.
* August 2007: Five Star Consumer Finance collapsed, with receivers PriceWaterhouseCoopers (PWC) saying big loans in its $51m lending book were "outside normal lending practices". Its prospectus showed it owed $57.6m at March 31, 2006, in various dated debentures and had lent out $68.7m.
* September 2007: LDC Finance Ltd trustee Perpetual Trust called in PWC as receivers after a run on its funds. Its 995 depositors and debenture holders were owed $19.3m.
* September 2007: Nelson-based car finance firm Finance and Investments was placed in receivership with PWC by principals Andrew Harding and Murray Scholfield, owing 370 investors $16m. Finance and Investments received funding from LDC.
* October 2007: BDO Spicers were appointed receivers to Auckland-based financier Clegg and Co Finance. Clegg had around $15m of 500 investors' funds in debentures. Covenant Trustees said Clegg's trust deed had been breached to a "significant extent".
* October 2007: Auckland-based Beneficial Finance secured agreement from debenture holders for a moratorium on debenture payments. It had investors' funds of $24.2m at the end of March 2007.
* October 2007: Geneva Finance stopped taking deposits and put a moratorium on repaying debentures. It owed about 3000 creditors over $138m.
* November 2007: Capital+Merchant Investments was placed in receivership, owing about $190m to 7000 investors. Capital+Merchant Finance and Capital+Merchant Investments breached general security agreements with Australian company Fortress Credit Corp.
* December, 2007: Numeria Finance went into receivership with 480 debenture holders owed $6.7m.
* February 2008: MFS Pacific Finance, now OPI Pacific Finance, a unit of publicly listed MFS New Zealand, announced it had defaulted on loan repayments after its Queensland-based parent, MFS Ltd now Octaviar, said it would not provide further support. MFS Pacific has $335m invested by 12,000 New Zealanders.
* February 2008: MFS Boston, indirectly owned by MFS Ltd, called for a stay in redemptions from its $38.5m investors' funds until November 2009.
* April 2008: Lombard Finance and Investments, a wholly owned subsidiary of publicly listed Lombard Group, was placed in receivership. Lombard was seeking a moratorium on its loans - $111m owed to debenture holders and $16m to holders of subordinated notes and subordinated capital notes.
* April 2008: New Plymouth-based Kiwi Finance Ltd placed in receivership on April 15.
* May 13 2008: Fairview New Zealand (formerly Cymbis New Zealand) (FNZ) placed in receivership, together with related company FP Holdings, by trustee Perpetual. FNZ, part of Capital+Merchant which collapsed in November, owes $6.9m to 797 stockholders.
* May 28 2008: Auckland based property financier Belgrave Finance called in receivers, owing over $20m to around 1000 debenture investors. The company's trustee is Covenant Trustee.
* June 17 2008: Dominion Finance Holdings (DFH) said it was mulling a moratorium on debenture repayments due to liquidity worries over subsidiaries, Dominion Finance Group and North South Finance. At March 31, debenture holders were owed $276m. DFH continued to trade profitably, with net profit for the months of April and May of $2.61m.
- INTEREST.CO.NZ/ NZPA
