Podmore 'fights for reputation' in last roll of the dice

By Gareth Vaughan (This article was first published before St Laurence was dumped into receivership late on Thursday) As he offered St Laurence’s 9,000 debenture and capital note holders a stark choice between receivership and ownership of the failed finance company, managing director Kevin Podmore says all he has left is his family and reputation. Podmore told interest.co.nz he has "minimal" assets left because all his wealth was tied up in St Laurence. Podmore and associated companies provided a guarantee to debenture holders in St Laurence's 2008 repayment plan setting out that if St Laurence was placed in receivership or liquidation they would pay up to NZ$20 million of any money owed to investors. The debt for equity swap plan put to St Laurence investors on Wednesday in an attempt to stave of receivership has courted the wrath of trustee Perpetual Trust. Perpetual's Matthew Lancaster said St Laurence had not had approval from the trustee to send out the press release and letter to investors and in fact had specifically been asked not to do so. (See related story). A Review Event had already arisen under the Trust Deed and Perpetual was "well advanced" in considering the options available for investors. The two parties will meet on Thursday afternoon with Lancaster noting Podmore's proposed debt for equity swap would release him from his personal guarantee. (After the meeting Perpetual put St Laurence into receivership) But Podmore said on top of his tight personal finances, the company guarantors now hold only about NZ$4 million of shareholder funds. "I'm still 100% committed to try and do the best by investors and the motivation isn't about getting out of my guarantee because my personal wealth is minimal," Podmore said. "It's all about putting investors in a position where they can make an informed decision and they can choose their destiny because they are [now] effectively the shareholders of St Laurence." In its appraisal of the moratorium repayment plan, PricewaterhouseCoopers said Podmore's guarantee held uncertain value for investors, was a statement of commitment aligning Podmore's interests with investors, and that failure to meet his obligations could trigger bankruptcy for Podmore. “The thing that I want to retain, other than the support of family, is my reputation," Podmore said. "It’s all about trying to fulfill my commitment I gave people back in 2008 to get their money back.” He estimates if debenture debt holders swap their stock for shares in a new company, St Laurence Holdings, whose sole director and shareholder is currently Podmore, they could ultimately get back more than 70 cents in the dollar. This includes the 10c debenture holders have got so far, although Podmore notes ultimately returns depend on what happens to property values. It is unlikely investors will get back all their money plus interest, Podmore acknowledges, but he said he would "try my damnedest" to maximize debenture holders return. The 500 or so capital note holders, meanwhile, will get "less" money back under the debt-for-equity proposal than debenture holders, but Podmore reckons it’s too soon to specify how much they can expect. Advice St Laurence’s board obtained from McGrath Nicol on the return investors could expect under receivership suggests debenture holders would get a further 26c to 38c in cash over two to three years and capital note holders would get nothing. The company has so far made all five scheduled moratorium repayments to investors with capital note holders getting 5c in the dollar. The next repayment had been scheduled for July 1. Podmore said St Laurence's audited accounts for the year to March 31 are likely to show the company is insolvent with its liabilities exceeding assets. He blames an “erosion” of property values with the downturn worse than expected when St Laurence’s 10,500 debenture holders and 570 capital note holders, who combined were owed about NZ$250 million, rubber stamped a moratorium plan late in 2008. The plan set out a drip feed of repayments with 70% of debenture holders – those with class A stock – set for repayment of their principal by November 30, 2013. However, there was no obligation for class B debenture holders to be repaid their full principal before 2021 and capital note holders potentially faced an even longer wait for their full principal, till 2034. The company, Podmore said, has suffered from a number of troublesome loans, but has been hardest hit by a fall in the value of its asset and funds management business, which includes management contracts for Irongate Property and the National Property Trust. Podmore cautioned that if St Laurence is deemed insolvent or put in receivership its contract to manage the National Property Trust could be terminated under the Unit Trust Act. And although St Laurence had received approaches from outside parties interested in doing some sort of deal along the lines of the Allied Farmers-Hanover Finance debt for equity swap, Podmore maintained these options were simply too hard because they involved value transfer. “In this case, we’re saying to investors there’s no issue about transfer of value, you get it 100%, whatever the value is of those assets.” He acknowledged Perpetual Trust was yet to be convinced that St Laurence’s proposal made sense, and hoped an independent report commissioned from Grant Samuel on investors' options, will help achieve this. "We've said to them if you can think of a better option which will insure that investors will effectively get a better return then we're open to it. But the big issue we see is the funds management assets, which make up 75% of the value of St Laurence, could be jeopardised by putting a receiver in place," Podmore said. Assuming it gets the go ahead from its trustee, St Laurence aims to have the Grant Samuel report and other documents in front of investors in early June with a vote, involving a choice between the debt for equity swap and receivership, in late June or early July. Investors were now economic owners of St Laurence so may as well be its legal owners too. If the proposed deal goes through, Podmore said the company that owns St Laurence's corporate guarantors would provide an option over those companies for $1. Then if  there was any future value there the investors would be able to capture it by exercising options. Debentures and capital notes acquired by St Laurence Holdings will effectively be redeemed by St Laurence Ltd under the sale of St Laurence Ltd's assets to St Laurence Holdings. This means debenture and capital note holders will become shareholders in St Laurence Holdings, which will own St Laurence Ltd's assets. Ultimately, Podmore said whatever investors deemed appropriate "we will live with." This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.