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Allied Nationwide's Speirs takeover sours

Allied Nationwide's Speirs takeover sours

Allied Farmers is seeking alternative funding for the BNZ backed securitaisation programme it inherited through its 2008 takeover of Speirs Finance.

The latest investment statement from Allied Farmer’s subsidiary, Allied Nationwide Finance, shows standby facilities allowing it to borrow up to NZ$120 million on the wholesale money market.

However, BNZ has indicated it doesn’t want to continue as the funding standby bank. The amount of commercial paper on issue under the securitisation programme at May 31 was NZ$86.2 million.

Allied said it was in negotiations with BNZ on an “appropriate transition arrangement” so it could secure a replacement standby funder or alternative funding for the programme.

“If Speirs Securities Limited is not able to obtain a suitable replacement standby funder or alternative funding arrangements within the agreed timeframe then the standby support remains in place to maintain continued funding for all receivables acquired up May 27, 2010,” the investment statement says.

Allied Farmers chairman John Loughlin told no progress had been made on finding a new funder since the investment statement was issued.

“If there was an update we’d inform the market,” Loughlin said.

“We’re working on it but there’s nothing to announce publicly.”

Citing client confidentiality, a BNZ spokesman declined to comment.

Allied Farmers paid NZ$5.6 million for the Palmerston North-based Speirs in 2008 in a deal that included the transfer of all Speirs’ assets and debts. Allied Farmers promptly amalgamated Speirs with Allied Nationwide. The deal was funded through a cash payment of NZ$3.1 million and the issuing of 1,851,852 Allied Farmers shares. Speirs sank NZ$2 million into Allied Nationwide perpetual bonds as part of the settlement. 

Then Allied Farmers chief executive David Bale said the deal gave Allied Nationwide the benefit of increased scale and access to funding from Speirs securitisation programme, which had an A-1+ rating from Standard & Poor’s.

'We will survive'

Meanwhile, Loughlin said he expected the troubled Allied Nationwide to survive beyond the October expiry of its Crown Guarantee.

Speaking yesterday afternoon ,shortly before Allied Farmers announced the suspension of its plans to seek up to NZ$19.3 million of fresh equity through a capital raising, Loughlin said he was “very confident” Allied Farmers could work its way through the expiry of its finance company subsidiary’s government guarantee.

“We’ve been working our way through these things for three years now,” Loughlin said.

“We’ve been able to predict the outflows fairly accurately and organize the collections of monies to meet them.” Asked if there was definitely life beyond October 12 for Allied Nationwide Loughlin replied “yes.” With a B credit rating from Standard & Poor’s, Allied Nationwide doesn’t qualify for the extended Crown retail deposit guarantee scheme which kicks in when the initial scheme expires on October 12, running till December 31, 2011. The extended Crown retail deposit guarantee scheme requires a credit rating of at least BB, three notches higher than B.

Allied Nationwide’s debenture reinvestment rate in May was just 29.3%, down from an average of 48.2% in the six months to April. Asked what the reinvestment rates were in June and July, Loughlin said one month was about the same and the other month better. However, he said he didn’t have the specific figures at his finger tips and referred the question, and another on how much debenture money was up for renewal before October 12, to Allied Nationwide CEO John Mallon. Mallon didn’t return phone calls seeking comment.

As of June 30, 2009 Allied Nationwide had NZ$236.7 million of gross payable borrowings. Of these, NZ$107.7 million was due within 12 months and a further NZ$44.4 million due within one to two years.

'In the hands of the Guardian'

Last Friday Allied Farmers said Guardian Trust had given Allied Nationwide 14 days to remedy a Trust Deed financial ratio breach which Allied Farmers disputes. The relevant ratio is that Allied Nationwide must not let its total liabilities exceed 90% of the value of its total tangible assets.

Allied Nationwide’s investment statement also notes that it doesn’t have enough capital to meet the minimum capital level requirements under the Reserve Bank’s new non-bank deposit taker regulations, which are due for introduction in December this year.

The regulations set out that the minimum capital ratio must be at least 8% for non-bank deposit takers with a credit rating from an approved rating agency. For those without a credit rating from an approved rating agency, the minimum capital ratio must be at least 10%.

Allied Nationwide will need capital from Allied Farmers - which is itself striving to pay off NZ$19 million worth of Westpac loans by the end of the calendar year - to meet these requirements, which could be through cash or the transfer of loans, in exchange for capital, acquired by Allied Farmers from Hanover Finance and sister company United Finance in last December's high profile shares for debentures swap.

“If Allied Farmers were not able to provide the company with the capital required to meet the proposed statutory regulations then the company may need to find alternative sources of capital funding,” the investment statement notes.

“If the company does not have sufficient capital to meet its statutory obligations at any stage then it would no longer be able to accept deposits, and would then need to assess its ability to continue trading.”

The investment statement also outlines that Allied Nationwide is owed NZ$33.8 million from Allied Farmers including through a credit enhancement agreement and a debt factoring arrangement.

Given its significant funding pressures and the suspension of its prospectus as Allied Farmers strives to rectify the dispute with Allied Nationwide’s trustee, asked sharemarket operator NZX whether Allied Farmers shares should be trading. NZX spokeswoman Merja Myllylahti said, as a general rule, a trading halt would be applied if there was concern that there was unequal access to information about a company in the market.

“IE that one or more parties had more information on which to base trading decisions than others.”

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