Receivership or a Hanover-style debt-for-equity swap are looming as the most likely outcomes for struggling Strategic Finance, analyst John Kidd of McDouall Stuart said yesterday.
In his firm's weekly commentary, Kidd noted that the company's latest loan write-offs alongside its failure to make an initial payment to investors last month
meant it had now triggered two "events of review" under its moratorium.
"There is no doubt that Strategic is struggling ... investors appear to have increasing grounds to question Strategic's management."
The company's management is in negotiations with trustee Perpetual Trust over Strategic's future and Perpetual's Matthew Lancaster last week said these were progressing.
"An announcement of their outcome is expected to be made shortly," he said.
"With the terms of the existing moratorium no longer feasible, receivership or some form of debt-for-equity arrangement similar to the recent Hanover/Allied Farmers deal present as the most likely outcomes," Kidd said.
However, he added that any prospective debt-for-equity deal would be complicated by the fact that Bank of Scotland International remains a holder of Strategic bank debt which ranks equally with retail debentures.
"Whether Bank of Scotland International would be prepared to convert its security to equity is highly uncertain."
Strategic would require 75 per cent approval from investors to complete a debt-for-equity swap but Bank of Scotland's $75 million in debt probably gives it about 20 per cent of the votes, said Kidd.
Meanwhile, Kidd also dismissed Marchmont Securities' 10c in the dollar bid for Strategic debentures as "opportunistic, cheeky and cheap".
Even after the latest write-downs, McDouall Stuart estimates a probable return to investors of about 63c in the dollar.
Strategic itself has not yet updated its estimated return since announcing the write-downs.
Strategic, which owes 15,000 debenture investors $325 million, froze repayments in August 2008.
The following December investors voted in favour of a moratorium the company said would see them repaid in full over five years.
