Strategic in talks as payment missed

Strategic Finance yesterday confirmed it is unable to make a first payment of just three cents in the dollar to retail investors under its year-old moratorium and is in discussions with its trustee about the future of the company.

Following a warning last month that the initial repayment was in jeopardy, Chairman Denis Thom yesterday said there had been a shortfall in the conditional and unconditional sales of properties financed by the company required to meet the repayment to retail investors.

Strategic had informed trustee Perpetual Trust that a "Review Event" would be triggered by its inability to make the payment "and this has already resulted in the commencement of constructive dialogue between the company and the Trustee".

Strategic's moratorium, accepted by investors in December 2008, allows for a minimum 14-day period following an event of review for negotiations with the trustee but Thom said "it is considered likely that further time will be required ... to ensure that all options to achieve the best outcome for investors are appropriately analysed".

Neither Strategic chief executive Kerry Finnigan or Perpetual's Louise Edwards were prepared to discuss the options being considered.

However, Thom said Strategic's board was "pleased" to confirm that a $25 million prior charge owed to the Bank of Scotland International (BOSIAL) had now been repaid.

Finnigan told the Herald the Bank of Scotland International repayment accounted for about 6c of the 9c in the dollar total repayment required for the period under the terms of the moratorium.

"So it was potentially 3c," he said in terms of what retail investors would have received this week. "The next milestone is not until June 2010 and that's about another nine or 10c payment."

"What's important to know is we have now cleared away the BOSIAL prior charge which means that any money that does come in will go straight to investors and they will start to see the benefits of having cleared away that debt now."

He said given the company had missed its first repayment to retail investors, it had now decided that any recoveries from its loan book would be distributed on a monthly basis rather than quarterly as originally planned.

Finnigan also defended the company's reporting of the structure of its loan book against allegations from Act MP John Boscawen that almost $70 million in second mortgages held by the company were effectively third ranking securities due to security sharing arrangements with other lenders.

"The directors have already written $28 million of this off. And I wouldn't be surprised if the balance of the $68 million has also been written off," Boscawen said.

However, Finnigan said all of Strategic's mortgages were either first or second ranking and while within each class there were security sharing arrangements which left Strategic in a subordinated position with regards to cash flow, this had been disclosed "fairly" in documentation.

Strategic, which owes 15,000 debenture investors $325 million, froze repayments in August 2008. It initially forecast full repayment over five years to debenture investors but in September told them the deteriorating property market meant a repayment range of 89c to 93c in the dollar was likely.

"We are coming into another audit and review period so again all of the asset values and provisioning will be tested again," Finnigan said yesterday.

The company's assets include loans to the stalled Ponsonby Soho Square, the troubled Fiji Hilton project, and Cornerstone Group's 30-level Sentinel apartment tower.

STRATEGIC FINANCE
* Owes 15,000 debenture investors $325 million.
* It is unable to meet an initial repayment to retail investors of just 3c in the dollar.
* The company blames a shortfall in the number of sales of property developments it has financed.
* It is currently exploring "options" with its trustee to ensure the best outcome for investors.
* The company's next repayment of nine or 10 cents in the dollar is scheduled for June this year.