Allied trustee challenge goes down to the wire

Allied Farmer chief executive Rob Alloway. Photo / Dean Purcell

Allied Nationwide Finance's efforts to satisfy its trustee, over what the trustee deems to be a breach of the finance company's Trust Deed, are going to the wire with no announcement likely today.

Bryan Connor, general manager for corporate trusts at trustee Guardian Trust, said not to expect an announcement on the situation until tomorrow.

Guardian Trust gave Allied Nationwide 14 days from August 6 to remedy the situation, with that two week period up tomorrow.

"There are a lot of things on the table," Connor said.

"We're just working through everything and it'll probably be tomorrow before anything is finalised."

Allied Nationwide, whose depositors are covered by the Crown retail deposit guarantee scheme until October 12, has about NZ$137 million worth of debentures on issue.

On August 6 Allied Nationwide pulled its prospectus but said it disagreed with Guardian Trust's ruling and expected its accounts for the year to June 30 would prove it right. But it said this audit would not be completed until the end of August.

The Trust Deed ratio at the centure of the dispute sets out that the company must not let its total liabilities exceed 90 per cent of the value of its total tangible assets.

Allied Nationwide's most recent investment statement reveals serious funding strains on the company.

It shows Allied Nationwide's debenture reinvestment rate fell to 29.3 per cent in May from an average of 48.2 per cent in the six months to April.

It also reveals that the BNZ wants out of its role as funding standby bank for a NZ$120 million securitisation programme Allied Nationwide took on through its takeover of Spiers Finance in 2008 and as of May 31, NZ$86.2 million worth of commercial paper was on issue under the programme.

The investment statement also notes Allied Nationwide expects to recognise a total loan provision expense of approximately NZ$10.7 million for the second half of the year ended June 30, and doesn't have sufficient capital to meet the requirements of the Reserve Bank's new non-bank deposit taker regulations due for implementation in December.

Parent Allied Farmers, which put on hold a planned capital raising of up to NZ$19.3 million until the Allied Nationwide situation is resolved, has agreed to provide capital to Allied Nationwide. However, the investment statement outlines that Allied Nationwide is owed NZ$33.8 million from Allied Farmers including through a credit enhancement agreement and a debt factoring arrangement.

Since the stand-off with its trustee emerged Allied Nationwide has had its long-term credit rating cut by Standard & Poor's to CC from B, which S&P said reflected a material weakening of its liquidity and cash position.

When Allied Farmers acquired the Hanover Group's property and loan assets in a deal valued at NZ$396.2 million last December, it said it hoped this would enable it to strengthen Allied Nationwide's balance sheet through the contribution of "quality loan assets as an injection of capital."

It anticipated this would pump at least NZ$50 million of new equity into Allied Nationwide. However, Allied Farmers now says the assets it acquired from Hanover have collapsed in value to be worth just NZ$94.3 million at June 30.

About 16,500 Hanover debenture holders were issued about 1.9 billion Allied Farmers shares last December at 20.7c each.

- INTEREST.CO.NZ