Strategic Finance Chief Executive Kerry Finnigan has written to financial advisors detailing a proposed recapitalisation plan that has yet to be agreed by its controlling shareholder Allco HIT or announced to the New Zealand and Australian stock exchanges.

We have obtained a copy of the letter that details a recapitalisation plan that would see debenture holders (currently around 13,000 investors have NZ$300 million frozen in Strategic) repaid just 30% of their investment in equal tranches over the next two years.

The remaining 70% would be invested in 3,4, and 5 year secured listed bonds. The interest rate would be reset and Strategic would continue to make interest payments. Finnigan did not detail what the interest rate would be reset to.

Here is the letter in full below.

Update from Kerry Finnigan

I tried to make contact with as many financial planners as I could yesterday, so if I was unable to get to you please accept my apologies and if after reading this note you require more information please feel free to contact me.

You will now be aware that we put a trading halt on our perpetual preference shares yesterday and also a stay on all redemptions.

As you know the management and HBOS International (Australia) have been in negotiations to acquire Strategic Investment Group Limited. These negotiations are proceeding well, however through the period of due diligence more finance companies and some well respected investment funds announced difficulties meeting the increased level of maturities seeking suspension or moratorium.

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Kerry Finnigan

Strategic Finance

On the back of this the bank became concerned as to exactly what was happening with investor sentiment in NZ.

The bank was very clear that whilst it was prepared to provide capital and additional funding for the business that this was not, in any way intended, to substitute or underwrite the debenture holders' position.

The bank was prepared to continue with the transaction but only on the basis that the Company undertake a "Capital Restructure" which would involve all stakeholders.

This Capital Restructure involves the management and HBOS acquiring Strategic Investment Group and providing additional capital into Strategic Finance Limited. HBOS will also increase its funding line to Strategic Finance to $150m.

As part of the Capital Restructure Secured Debenture Holders will be asked to accept the following arrangement:

1. 30% of their investment will be repaid in three equal instalments on the 31 March 2009, 30 September 2009, 31 March 2010.
2. The balance of their investment is to be invested in 3, 4 and 5 year secured listed bonds in equal proportions.
3. The interest rate on all investments will be reset.
4. Interest will continue to be paid quarterly in arrears.

The restructuring plan proposes that Subordinated Debt Holders will also continue to receive interest paid quarterly in arrears. They will however be asked to reinvest in the 5 year secured listed bonds changing security position.

The Perpetual Preference Shareholders will be asked to agree to the release of the Allco HIT guarantee.

We expect to provide you with a full explanatory memorandum on the transaction once the appropriate approvals have been given from Allco and the consortium.

Please be aware that the transaction is still indicative and non binding on all parties.

Again if wish to discuss this further, please contact me by return.

Kerry

Yours sincerely,
STRATEGIC FINANCE LIMITED"