Strategic Finance receiver trims likely returns

Soho Square, an abandoned Auckland property development funded in part by Strategic Finance. Photo / Paul Estcourt

Investors in failed lender Strategic Finance are facing a smaller return with the receiver cutting 9 cents in the dollar from the top end of the prospective recovery range.

Receiver John Fisk, of PricewaterhouseCoopers, expects a return of between 12 per cent and 26 per cent of the principal owed to debenture holders, down from the 12 per cent to 35 per cent range previously flagged, according to a letter to investors on April 29.

Fisk said the reduction came from a reassessment of the likely recovery from a significant second mortgage in Australia, and a weaker-than-expected price from a sale of an asset that Strategic held security on.

"The New Zealand property market remains difficult and there are still considerable uncertainties relating to the recoverability of many of the loans secured over property, which will have an impact on the final recoveries that we will be able to achieve for secured debenture holders," Fisk said.

"We continue to focus on recoveries from the property loans, personal guarantees provided by borrowers and legal action than may be available to us and/or the liquidators," he said.

In January, Fisk told investors the receiver was helping the Securities Commission investigate the lender by providing access to Strategic's records and providing analysis on request. Liquidator Corporate Finance was also looking into one of the transactions flagged by Fisk. The investigation is continuing.

Strategic's transactions came under scrutiny in December 2009 when Act Party MP, and former associate Commerce Minister, John Boscawen told the Parliament that the finance company misrepresented about $68 million worth of debt which it classified as second mortgages when they were effectively a third-ranking security.

Commerce Minister Simon Power referred the matter to the Securities Commission in March last year.

The receivers clawed back some $13 million out of $70 million of realisations, with the balance going to prior ranking security holders and to cover sale costs. The receiver will continue with the sale process and flagged an as-yet unspecified payment by the end of July.

Last September, some 10,000 investors owed $368 million got their first payment of 2 cents in the dollar, a total amount of $7.4 million.

Strategic was sent to the receivers in March last year by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since December 2008.

The finance company missed a milestone repayment in January last year after it failed to generate enough loan recoveries.

It had tried to get out of trouble in a Hanover-style debt-for-equity swap with South Canterbury Finance that would've given Strategic investors a mix of SCF debentures, shares and preference shares, but Perpetual chose to call in the receivers instead.