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Strategic Finance suspends withdrawals, eyes restructure
Strategic Finance has announced it has suspended withdrawals and is considering a capital restructure, despite having the backing of Bank of Scotland International for a management buyout just last month. This came after investors withdrew almost NZ$200 million inside 7 months. (Updated to include funds outflow) Strategic announced on July 17 it had agreed indicative non-binding terms with Bank of Scotland for the bank to take a 19.9% stake in the property financier with an option to buy up to 49%. This deal involved Bank of Scotland doubling its loan facility for Strategic to NZ$150 million and was part of a management-led buyout of Strategic's current owners, the Australian financial services and investment fund, Allco HIT. Strategic said Bank of Scotland now wanted a capital restructure that would require the consideration of debenture and note holders, which suggests some sort of debt for equity swap similar to the one orchestrated by Bank of Scotland at Geneva Finance. Strategic CEO Kerry Finnigan was not immediately available for comment.
Under the Geneva Finance recapitalisation plan and moratorium, debenture holders eventually agreed to swap 15% of their NZ$98.4 million of debenture investments for shares in Geneva, that were later listed on the NZX. BOS International, which is owned by Edinburgh-based Halifax-Bank of Scotland (HBOS), backed the Geneva plan that saw it convert a NZ$42 million bank facility into a NZ$35 million term loan over 3 years. Strategic, which was set up in 1999 and initially run by NZRU Chairman and former All Black Captain Jock Hobbs, now has over 13,000 investors with NZ$300 million invested in secured debentures. (This is updated from an earlier version which said Strategic had 20,000 investors with NZ$487 million in debentures as at December 31.) 
Strategic's biggest loan was to the developer of the Denarau resort in Fiji where Bank of Scotland has a first mortgage. We reported in late June that the Fiji project was partially completed and beginning the sales process for the third and final stage of resort villas. Strategic was not to be repaid all its money until that third stage is completed and there was uncertainty about when that might be because initial pre-sales have been slow. Design and feasibility for the third stage had not started by the end of June. 99% of Strategic's loans were for property development or property investment. This takes the number of finance companies and mortgage trusts who have collapsed or been frozen since May 2006 to 39. The amount of investments at stake is now NZ$5.797 billion and the number of investors involved is now over 178,000, according to our definitive "Deep Freeze" list. Here is the full statement from Strategic. The statement did not make clear whether interest payments would be suspended.
As announced on 17 July 2008 a consortium consisting of the original owners, senior management and BOS International has entered into negotiations for the acquisition of Strategic Investment Group Limited, the immediate parent of Strategic Finance. Those negotiations have been ongoing and the Board of Strategic Finance understands that in addition to a change of ownership the transaction will involve a capital restructure. This will require consideration by Strategic's securityholders of debenture stock, subordinated notes and perpetual preference shares. While the negotiations have been continuing there has been a further material decline in the property finance market sector and reinvestment rates. To allow these matters to be concluded and to protect the position of the securityholders, the Board of Strategic Finance announce that effective from today it has suspended redemptions of its secured debenture stock and subordinated notes. Strategic Finance has also ceased accepting subscriptions for debenture stock and subordinated notes under its current prospectus and investment statement.
11 Comments
Why is it these jokers
Why is it these jokers can't just front up with an honest admission?????
' ... to protect the position of the securityholders ...'
yeah right!!!
Not being able to make your redemptions has absolutely nothing to do with protecting the interests of the investors. Who are securityholders.
It was either going to
It was either going to be you or Andy Hamilton in the race for the first post. Well done insider :)
Notwithstanding your comments are generally both very informative. Good work guys :)
Insider, what then is it
Insider, what then is it you suggest Strategic does? What honest admission?
As can be seen in
As can be seen in this article about bank bail outs Here, The Bank of Scotland, subsidiary of HSBO, have recently been bailed out by the privately owned corporate central banks and have recently been to the public for funds with one of the biggest rights issues in banking history due to liquidity problems after massive debt right downs, and are now setting about desparately trying to find borrowers to loan to at margin in hope they will be able to repay their financiers, this essentially means they will loan you some more of their "Created Credit" provided you put up all the hard assets as colateral, then the finance company will continue on its mary way "Creating" even more "Created Credit" until the inevitable happens again, due to either more "Credit" being loaned than the "Real Sector" can physically repay, or the finance company not being able to relend the new loans at a profit due to the Worldwide depression the BIS warned of in 2007. Here If this house of cards is allowed to see out its full course, without reform of the debt based monetary system, all of this has only one tragic end, the privately owned corporate central banks at the very top will end up procuring ownership of much of the hard assets of the world, and it would have cost them next to nothing.
Cheers
Iain
Strategic's parent company Allco HIT
Strategic's parent company Allco HIT has also been placed in a trading halt this afternoon pending an announcement about the proposed sale of its New Zealand property finance business.
"This is a major transaction which may have a material effect on the share price,'' Allco HIT said in a statement.
Beyond irony: http://www.stuff.co.nz/4647290a13.html You mean
Beyond irony:
http://www.stuff.co.nz/4647290a13.html
You mean to tell me some of these companies had ratings?
You should take the time
You should take the time to study the history of Standard and Poors, Moody's etc,
even Ruth Richardson being involved anywhere near Morningstar as told in her cv
Heresends shivers up my spine.
The "unsophisticated" investors(Donators) have been led a mary dance me thinks.
Mitch O - If they
Mitch O - If they are being honest, they can't protect the interests of the debenture holders. Debentures are a form of security.
All this nonsense out there about moratoriums, recapitalisation proposals, etc., is just that - nonsense. Swapping debentures into shares still involves the debenture holders taking a loss, no what the proposal.
An honest statement would be - "both the finance and property markets are severely compromised at the moment. As a result of that the investors in our company can expect to make a loss. We cannot allow any more redemptions at present because our business is currently insolvent. We cannot avoid that but what we would like to propose is a solution which we feel could offer a better alternative (for all parties) to our investors placing us into receivership"
Latest update from Strategic: "Update
Latest update from Strategic:
"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.
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"
Extract from Axis Ratings Limited's
Extract from Axis Ratings Limited's press release announcing a B1 rating for Strategic Finance on 23 October 2007:
"The company's probability of default in the next twelve months is only 0.19%."
Oops...looks like that black swan does exist after all.
Extract from Chris Lee's website giving Strategic Finance a rating of A minus (and hence rating it the fourth safest of all finance companies in NZ, trailing only UDC, South Canterbury Finance & Marac):
"Property specialist and structured development projects with an outstanding balance sheet and management team. Current ownership issues need to be discussed with us. Strategic has an excellent external credit rating from Axis. Needs to resolve its ownership issue to return to A."
Why wasn't that announcement made
Why wasn't that announcement made public? its not on the NZX website.
Were debentureholders told of this? What are the reset interest rates to be?
i don't think BOS will proceed with this deal. There is too much 'truth' being discovered now about the true quality of the loan book for the debentureholders to allow this company to continue to trade.
i think Cris Lees rating analysis and criteria need to be reviewed. He obviously does not have a true grip on the underlying nature of the assets, despite his protestations he does. If he could give it an A minus when it had so much exposure to Fiji, and the locked in nature of loan repayments vs debenture maturities, and the resultant flow-on effect to investors should Fiji hit a speed bump, then what exactly what was he looking at when he cries long and loud at these lending philosophies?
how much did he have invested in strategic - clients, and personally?
no doubt we'll find there is some large loan here to Mr Bryers, or the now very bankrupt Rodney P.
i watch this space with intrigue.