$10m lost by Western Bay Finance

At least $10 million owed to Western Bay Finance's 3000 debenture stock investors has disappeared down the drain, they were told yesterday by the failed used car lender's receivers.

Western Bay receivers Grant Graham and Brendon Gibson, of Ferrier Hodgson, said their early analysis showed debenture investors who are owed a total of $48 million could expect to see 75c to 80c in the dollar of their outstanding principal.

However, Graham said "there remain some risks to this estimate, given the profile of the book".

An initial 10c payout would be made before the end of September.

Western Bay, the third used car lender to fail in three months, was placed in receivership two weeks ago after mounting bad debts on its $53 million loan book put the company in breach of its allowable assets to liabilities ratio.

Debenture holders in Provincial Finance, the largest of the three failed companies with just under $300 million owed to investors, are expected to get "most if not all" of their principal back, receiver John Waller has said.

Meanwhile, Graham said he and Gibson had taken "immediate steps" to strengthen Western Bay's in-house collection functions "and we are examining a range of options such as external agencies and outright sale of tranches of the book".

It is likely one of the potential buyers is Southland Building Society subsidiary Finance Now.

A bid to keep Western Bay out of receivership by selling some assets, including parts of its loan book to Finance Now, failed when the initial offer was altered, rendering it unacceptable to Western Bay's management.

Graham said he would keep debenture holders up to date on the progress of the receivership via Western Bay's website: www.wbf.co.nz.

Western Bay had made about 10,000 loans, mostly on used cars. It stopped lending in June with managing director Jim Smylie blaming a lack of incoming funds from investors due to negative publicity generated by the failure of Provincial and National Finance 2000.

However, it later emerged that provisions for bad and doubtful debts on the 17-year-old company's loan book had climbed to $12.4 million, almost a quarter of its total lending.

Last week, Western Bay's sister company, Linsa Insurance, went into voluntary liquidation.

While some commentators believe more finance company failures are unlikely, international ratings agency Standard & Poor's earlier this week predicted still more would fold over the next 12 months.