KEY POINTS:
The finance company meltdown claimed its 25th and biggest scalp yesterday when Hanover Finance froze repayments to 16,500 investors owed more than half a billion dollars.
The company - whose TV ads claimed it had "the size and strength to withstand any conditions" - was heavily exposed to
the crumbling property development market and dependent on retail debenture funding, which has now largely dried up.
"The market conditions have deteriorated dramatically," Mark Hotchin, co-owner with Eric Watson, said yesterday.
"It's a combination of the collapse of the financial markets and the whole system - the collapse of other substantial finance companies - which has affected our reinvestment rates pretty dramatically. And the inability of people with even good projects to refinance or sell to be able to repay us in a timely fashion."
Mr Hotchin also said Hanover had been hurt by developers who, unable to repay loans, had sought "sweetheart deals" by threatening or undertaking messy legal action.
The suspension of capital and interest repayments effective yesterday, along with a freeze on new investments, would enable the business to be "managed in a measured way as it works through a restructure plan to allow investors to be repaid over an agreed time period".
The arrangement also applies to investments with Hanover Finance subsidiary United Finance and sister company Hanover Capital.
Hanover Finance owes about $465 million to 13,000 debenture investors. United Finance owes $65 million to 2400 and Hanover Capital $24 million to 1100 holders of secured preferential bonds. The repayment freeze and restructuring proposal do not apply to Hanover's consumer finance subsidiary, FAI Finance.
With a total of $554 million in investors' funds at stake, Hanover is bigger than Rod Petricevic's Bridgecorp, whose collapse last year triggered a second round of carnage among finance companies.
Mr Hotchin said Hanover's owners, board and management had been battling for eight months to keep the firm afloat and had been hopeful of doing so until Dominion Finance, St Laurence and Dorchester Finance struck difficulties in quick succession in recent weeks in a third wave of casualties.
Mr Hotchin said Hanover was "still projecting a cash-positive position".
"But, given the future uncertainty for the industry and the impacts now being felt by even the most well-established finance companies, we believe it is prudent to act early to preserve value for all."
He and Mr Watson had pledged "continued support for the business and would work closely with the trustees to deliver the restructure arrangement". Mr Hotchin said that support would be financial but he refused to confirm it would take the form of an injection of fresh capital.
HIGH-FLYERS' HISTORY
Hanover Finance:
* Has suspended repayments of principal and interest to 16,500 investors owed $554 million.
* Its difficulties bring the total amount of investors' funds tied up in 25 failed or stricken finance companies to about $3.3 billion.
* Formed in 2001 when Eric Watson and Mark Hotchin consolidated $650 million worth of their finance and investment assets, including Elders Finance, Nationwide Finance, Leasing Solutions, Elders Home Loans and Hanover Securities.
* At the end of last year was ranked NZ's fourth-largest finance company, with a loan book of $749 million.
* Recently moved to put Christchurch property developer Dave Henderson's Five Mile project near Queenstown into receivership. Mr Hotchin says Hanover is owed about $50 million on the project but says it did not trigger Hanover's present difficulties. "Even if it had been repaid in full, I think we'd still be having this conversation."
* Similarly, he says the significance of any loss incurred in the mortgagee sale of the Kinloch golf resort has been overstated.
* Hanover also says it has suffered as borrowers - including US-based New Zealander Mark Cooper who owes about $30 million - seek to challenge their loan obligations through the courts.
