Lombard investors get 6.5% repayment after IRD waives preferential claim

Lombard Finance receiver PricewaterhouseCoopers (PwC) said investors would receive a repayment in mid-December of 6.5 cents for every dollar invested. The distribution was earlier than expected after the Inland Revenue Department agreed to waive any preferential claim it may have over this interim distribution to investors. The IRD had not finished its GST audit of Lombard, PwC said. The audit may still result in identification of any preferential claims the IRD has against Lombard. "It is expected that any preferential payments will be required to be paid in full prior to any further distribution to secured debenture investors," PwC said. Lombard Finance was put into receivership in April 2008, with NZ$127 million of debentures and notes on behalf of approximately 4,400 investors. Its biggest asset was its property loan book of 27 loans worth NZ$137 million. It turned out that most of the 27 loans at the time related to bare subdivisions or uncompleted residential developments and that 18 of the loans were second or third mortgages or worse. Most of the loans were not paying interest and were set up to be repaid in full, including interest, when the loan matured. PwC said that its estimated recovery range from Lombard's loan book was still 17% to 29%, although it noted that the property market continued to be "challenging and volatile, particularly in respect of development land and bare land coastal subdivisions". "Borrowers continue to face difficulties in achieving sales or refinancing of the property assets securing LF&I's loan book. In a number of cases, LF&I is selling the underlying property asset as mortgagee or has appointed receivers to manage the sell down process," PwC said. "Marketing campaigns are currently underway in respect of certain significant loan assets. The outcome of these marketing campaigns will not be known until December 2009/January 2010 at the earliest and accordingly we intend to review our range of recoveries for our next report due in February 2010." "Overall achieving loan recoveries remains difficult due to market conditions and in certain cases, enforcement action by prior ranking security holders has resulted in minimal or no recoveries for LF&I. We can assure investors that we continue to make every attempt to maximise recoveries in an efficient manner, whilst actively investigating those who may be held accountable for the losses." Here is the full letter sent to investors: Lombard Letter to investors, Dec 2, 2009