Published 14 March 2010
Perpetual Trust Ltd appointed receivers to Strategic Finance Ltd on Friday, cutting short a 5-year moratorium which began in December 2008 but hadn’t produced the anticipated returns.
The trustee appointed John Fisk & Colin McCloy (PricewaterhouseCoopers) as receivers, saying it had given Strategic’s board time to develop & submit offers received after moratorium conditions were breached. Mr Fisk was the PWC partner who compiled the 2008 independent report on the moratorium, which presented a more sceptical view of likely returns than the board’s projections.
The board, in response, said it was disappointed in this outcome after negotiating with the trustee in good faith following the trust deed review events. While the trustee said it had allowed time for Strategic to submit offers, the Strategic board said it had delivered 6 viable options which would have provided a better outcome than receivership.
Major stakeholder BOSIAL (BOS International (Australia) Ltd) supported the moratorium 15 months ago and Strategic said the financier continued to be a strong supporter.
“The board considers receivership to be very destructive to value and detrimental to the repayment of monies to investors. 2 of the proposals were well advanced and would have provided for an immediate cash payment, ongoing income & the potential for maximum recovery for investors. “The board are surprised that, although there was strong support from Bank of Scotland (as the single largest debentureholder) for both transactions, the trustee has chosen not to allow investors to consider & vote on the proposals.” At 31 October 2008, Strategic had total assets of $517 million, including a loan portfolio with a net book value after provisions of $478 million. The portfolio had about 100 loans but was highly concentrated: the top 10 loans by borrower group accounted for 67% of the total portfolio.
60% of the portfolio was in default as the loans had passed their due date for repayment and had yet to be repaid. A further 7% would have been in default had their maturity dates not been extended. 58.5% of the total dollar value of outstanding loans was secured by second-ranking mortgages.
Strategic had 12,800 stockholders at that time, holding $410 million (including $120 million of the nominal amount of security stock held by BOS as security for an aggregate principal amount of about $100 million).
The expectation under the moratorium was that investors would eventually get back 100% of their principal, plus interest. But the value of the loan book kept declining: By December it was down to $220 million, and by January it was worth less than 75% of Strategic Finance’s liabilities.
On 1 March, Strategic said it made a $100 million after-tax trading loss for the December half – $16 million worse than it signalled in January. Total assets were halved from a year earlier – from $463 million to $234 million – but total liabilities rose by 3% to $435 million, taking shareholders’ funds from a positive $41 million to a negative $201 million.
Strategic chairman Denis Thom told investors in the January newsletter the company had fully repaid BOSIAL’s $25 million priority debt facility – which he said was positive because it meant all future income beyond the needs of working capital could be repaid directly to investors. But, immediately, it meant Strategic couldn’t make its scheduled 7 January payment to investors, sparking the first of the review events under the trust deed.
One of Strategic’s big outstanding loans was $70 million in second-mortgage funds to Layne Kells’ Soho Square project in Ponsonby – a 1.3ha hole which was taken to tender by CBRE at the end of February. The Strategic debt stood behind $23 million owed to Fortress Credit Corp (Australia) II Pty Ltd, and the debt to Fortress was about the sum Mr Kells’ Marlin Group paid for the former DYC vinegar factory site in 2004.
Perpetual said: “Following the announcement of those 2 review events in January, a number of offers from third parties for restructuring &/or sale of its assets were received by Strategic. Perpetual Trust provided the board & management team of Strategic Finance a reasonable amount of time to develop these offers and for it to submit them to Perpetual.
“Perpetual Trust, as trustee for investors, is now satisfied, having completed a thorough review, that receivership is a better option for investors than proceeding with any of the proposals.
“Perpetual Trust believes that receivership is the best option because the receivers will be focused on achieving the best outcome for investors, and in particular that it is expected ultimately to provide better returns for investors.
“While the processes required following the review events and in assessing the options have taken longer than Perpetual Trust would have wished, Perpetual believed it was important to establish whether any of the restructuring or sale proposals would have provided better returns or more certainty for investors.
“Perpetual Trust will be writing to investors next week and the receivers will be in contact with investors in the next few weeks with contact details, their expectation of the timetable for their work programme and when they will be able to advise their expectation of how much of investors’ monies will be realised.”
Earlier stories:
3 March 2010: