Liveblog: Bernard Hickey at Hanover Finance vote (Update: Proposal passed with 93% yes vote)
9th Dec 08, 11:10am
I'm here at the Ellerslie Convention Centre in Greenlane at the Hanover Group meeting on its proposal for a debt restructure. (Update. The proposal has been passed with 93% of debenture investors voting for the plan.) Hanover told the High Court last night that 70% of the votes received before the meeting were in favour of the proposal. The meeting is standing room only. At least 100 people are standing along the back of the room. We think (thanks to Alex who did the counting) there's at least 1,000 investors in attendance. Most are elderly investors and they're grumpy. There are lots of complaints about the sound system being too quiet. Every row of meeting attendants has at least one with a walking stick. Hanover CEO Peter Fredricson has presented the proposal to the meeting and now founder and owner Mark Hotchin is answering questions from the floor. Hotchin has been asked about the percentage of second mortgages in the loan book. He said about 85% are second mortgages. Hotchin and now Fredricson are being asked about the assets being put into the debt restructure plan by Hotchin and Eric Watson's personal company, Axis Holdings, in particular assets in the Matarangi Beach estates. Fredricson says the Matarangi assets are worth NZ$75 million with a NZ$21 million first mortgage Brian Connor from Guardian Trust is being asked about his performance. "It's inappropriate for the trustee to make a recommendation," says Connor. "We've worked with PwC to explain why a receivership or a moratorium might work." A smattering of weak applause follows. One questioner asks why Hotchin was not putting up his personal Waiheke Island and Paratai Drive properties into the restructure. His question is widely applauded. "...because some people are saying he resides in Parasite drive," the questioner says. His question is rejected by the chair as a statement rather than a question. There are jeers from the audience. Hanover Chairman Greg Muir is answering a question about why Hanover told investors in June that it was solid when it shut down just weeks later. Muir says the world changed utterly after the credit crunch and the property market collapse. The collapses of St Laurence, Dorchester Pacific, and Dominion Finance in one week in June was the key moment, he says. "That was the straw that broke the camel's back," Muir says. "From that week onwards confidence in the industry evaporated completely." One elderly investor interjects that he received a letter on July 16 assuring him that his money was safe. He doesn't get a chance to get the microphone. 'A bird in the hand' John Waller from PricewaterhouseCoopers is now defending the debt restructure plan. He says any legal action against the directors in a receivership would be difficult, time consuming and costly. "There is NZ$36 million of value here now and some value in the Axis assets. The directors say NZ$40 mln but we say it's worth less than that. And then there's the NZ$20 million of contingent support," he says. "If you get NZ$36 million, that's something," Waller says. "My old grandmother told me a bird in the hand is worth more than a bird in the bush. On balance we believe the restructuring will give a better chance of recovery," he says. "If you want retribution, then vote for receivership, but the outcome will be difficult and costly." He is applauded widely. Hotchin is asked by an investor who has compounded his interest with Hanover for years why he hasn't contributed his Waiheke Island and Paritai Drive properties into the restructure. "I'm very angry," the questioner adds. "We have a company with NZ$60 million of equity which is very much at risk. In addition we have agreed to pledge new assets. The question is how far do you go with that. We started at NZ$40 million and PwC asked us to put in more," Hotchin replies. "We have put in up to NZ$96 million and that's a significant amount of money." "In a perfect world we would do everything to make sure the money would be retrieved, but we judged this was appropriate." Chairman Greg Muir talks about the billboard campaign by developer Mark Cooper against the moratorium. "The guy that has done that owes us more than NZ$20 million and has threatened this ongoing campaign of nonsense. He wanted to traumatise us to make us go away," Muir says, adding the developer wanted to exchange NZ$20 million of debt for NZ$1. "I am bloody traumatised here today, but I'm not going away because I want to do everything to get that 100 cents in the dollar back." He is applauded. Hotchin and Fredricson are asked about why the plan is for a default to be declared onlay after two payments have been missed. Hotchin says: "It isn't a walkaway. There is NZ$10 million in there already. I don't think we'll be deliberately missing payments." Bruce Sheppard stands up to a murmur of anticipation. Some are grumpy that he wants to ask more than one question. There is a dispute with the chairman over this. Eventually Sheppard asks for a show of hands on whether he should ask one ore more questions. Most put their hands up for only one question. He agrees to that. One questioner wants more time given. "Some people won't live to see their money Sir. There is time to ask the question," he says to applause. Sheppard asks Waller about the consideration of the plan and whether it was done honestly. Waller replies the question is nonsense and absurd. Waller goes on to say PwC has recommended the restructuring plan as better on balance than receivership. Sheppard says the question was not answered about whether the assets considered for the restructure plan would have a value. He now asks about the future profits from fresh lending. He says the PwC report is deficient and deceptive in not measuring the future profits from that lending. PwC puts forward a Mr Bridgeman (spelling not checked) to answer. He says the forecast profit contribution from new lending is worth around NZ$10-11 million. "That does provide further incentive for the shareholders to support the company as it's an ongoing business," Bridgeman says. Where's Eric Watson? One questioner asks why Eric Watson hasn't showed up, although he acknowledges the bravery of Fredricson, Hotchin and Muir in appearing before an angry audience. He then asks about what happens when an investor dies before repayment in 5 years and whether repayments can be made early. "There is no option for early repayment in the event of death before final repayment," Fredricson says. He tells of one of the roadshow meetings in New Plymouth where a questioner was blunt about his situation. "He said he was going to die. He had cancer. But he didn't want the repayment assigned to his estate because it was going to take even longer. He wanted the investment made to his daughter. We went away to have a look at that. Our legal advice was that he could," Fredricson says. Paratai Drive in the pot too? Another questioner asks Hotchin about his Waiheke and Paratai Drive properties and whether he would sell them to help repayment investors. "They're your homes and your lifestyle. This is our money. If necessary, will you sell those properties to pay us back our money," the questioner asks. Hotchin replies saying it's a difficult question. "The Waiheke property has been pledged in the package. The Paratai Drive property. I wish to hell I'd never bought it. It's half finished and couldn't be sold. Our intention is to finish that house and to live in it as our home," Hotchin says. "If it's (the repayment plan) going to be close and we need to put up more, I guess we'll have to find it from somewhere, and that might have to go," he says of the Paratai Drive property. He is applauded. One questioner asks if all the key players will be around in 6 years to ensure investors are repaid. "Are they going to be there in 6 years time because my wife is going to be on her own, and she needs this money." Muir says he will not be there from February next year, having told Hanover back in 2007 he wanted to leave to go to an executive role. He will become the CEO of TruTest. The others would be there, he says. Fredricson says he plans to stay as CEO, but that he has been abused over recent weeks by investors and commentators. Whether he stayed depended on the shareholders, he says. Are you sticking around? Muir is asked what progress has been made in finding independent directors. "Finding someone fresh off the street who was prepared to go through this was impossible. Mark and I agreed a while back to be the sole directors." "We thought it was totally unfair to expose any new directors to this given they had not been involved and not aware of the details or background," Muir says. "We wanted to make sure we gave you an opportunity to get your disappointment and anger off your chest at us rather than at them," he says. Fredricson is asked about the value of the assets being contributed to the restructure and whether they are worth anything given they come encumbered with bank first mortgages. "It's certainly not negative in our view," Fredricson says. A questioner asks why no interest is being paid after the capital is repaid from the NZ$20 million being put up to guarantee payments in year 2 and year 3. He says he had NZ$200,000 invested in early July and chose to invest a further NZ$100,000 two weeks before the closure of Hanover because of reassurances he received from Hanover. Hotchin says the proposal is to repay 100% of capital. "We didn't want to put that up because we thought we could get it back anyway. But as the market continued to deteriorate we realised there was some concern about that, so Eric and I both put up the NZ$10 million each," he says. A questioner with an 83 year old mother who is an investor asks PwC about their forecasts in paragraph 27 of the report of a 50c recovery from a recievership and 55c from the Hanover plan. "I think we're being asked about a difference of 5 cents. Could someone explain that to us," she says. 'Restructuring is better' PwC's Bridgeman reiterates the Hanover plan gives somewhat more than receivership. "The restructuring plan looks more attractive relative to receivership," Bridgeman says. The questioner follows up. "We're being asked to make a decision for the sake of 5 cents. Is that correct," she says. "Yes that is correct," Bridgeman says, eliciting murmurs from the audience. One questioner says the vote today is about the credibility of the people running Hanover. "I want to ask the trustee and PwC if they know about the extensive litigation against Hanover and Mark and Eric and the implications of that for the plan," he says. He reinvested on June 30. "If this litigation, which I understand is going badly, does go badly, then what does that do to the plan vs receivership," he says. Fredricson says he was aware of the litigation. "We're aware of a significant amount of litigation in our business. We are in a business that involves itself in a lot of litigation," he says. "That can go both ways," he says, pointing again to the issue of Mark Cooper's billboard. 'It's worth zero' A questioner asks about a letter he received from Hanover on November 27 which talked about the management team's significant expertise in property management and lending. "That's not a very good statement. This company is in big trouble. I don't think the people here say they're good at what they do. Have you been to Coromandel lately? Nothing is selling. I put it to you that the properties you're putting back into the company are worth Zero," he says. Fredricson replies: "The properties at Matarangi Beach estates are not worth zero. We have current valuations for first mortgage held by the bank undertaken in June. I talk about the expertise and the intellectual property in the management team. We can look at lending that was taken 12-24 months ago and say it was not good lending. We can blame the management and blame everyone elese." He refers to Fonterra's recently lowered forecasts as an example of how things can change and views can change. "There is significant borrowing out there from our customers to work on very hard and we understand the structures of those loans and the properties we have lent against," he says. "You should go into politics with that answer," is the reply from the questioner. "You say it's worth up to NZ$96 million. It's not going to be worth anything near NZ$96 million. You are dreaming." Hotchin responds: "You can't realistically go to somewhere like the sections at Jacks Point and say they have no value. Sections were selling at NZ$600,000 12 months ago. Give us some time. They're very, very good developments and over time they'll be worth a lot. There's only upside for you." "Why don't you pledge cash instead of property," one person yells from the back of the room before he is shushed down by others in the audience. One questioner asks about Hanover's plans to resume lending and borrowing within the 5 year restructure plan. "Why do you think you could find anyone who would invest in Hanover ever again in our lifetimes," she says to applause. The debenture model is broken forever Muir says: "If the business does survive the five years and does new lending, that funding will come from wholesale funding. You are right. You people have lost an enormous amount of faith in the industry and in debentures and may never go back there." There is no applause. A questioner says: "Last week when I was here (for the roadshow meeting) I was opposed to the restructure and I was angry. People wanted to punish someone. We all wanted our money back tomorrow. But that's not going to happen. We should look forward to the best outcome for investors and I urge investors here today to vote for the restructure." He receives light applause. Bruce Sheppard returns for a final question and comment. "It's a choice between NZ$36 million in cash or what you're giving away. You are giving away NZ$200 million in interest. You're giving away NZ$86 million in dividends and the right to sue the directors. Guess what happens if those solvency certificates are not true. You are giving up the ability to sue those directors personally. It's a choice between a pig and poke and I think we should choose the poke." Another questioner makes a final point. "I don't need a microphone. I could fill Eden Park from one side to the other," he says. "We're not voting on a restructure. The question should really be: Do we want to reinvest what we have for another 5 years. That's what we're doing at zero percent. If we were starting from scratch. Would we say zero percent was any good and is the board any good? The answer of course is no." "It's either, we're having a receiver appointed now or a receiver in 5 years. That's what we should consider," he says. The questions have finished and now the formal resolutions are being read out. Many people are leaving. One lady pulls me aside to say she is voting "no". She races off the voting booth with a bit of a resigned laugh. Votes are now being counted. We'll have the result as soon as it's counted. Most investors have left now and Hanover spokesmen have said it will take another 1 and a half hours for the voted to be tallied and for the result to be announced. The results are in There were votes for NZ$346.2 million worth of Hanover Finance debentures, with 92.97% in favour and 7.03 against. There were votes for NZ$1.3 million worth of subordinated notes with 75.76% in favour and 24.64% against. There were votes for NZ$46.3 million worth of United Finance debentures with 94.15% in favour and 5.85% against. There were votes for NZ$17.8 million worth of Hanover Capital bonds with 93.23% in favour and 6.77% against.