Mascot Finance investors' benefit from Treasury's post South Canterbury Finance open slather repayment policy

Mascot Finance investors' benefit from Treasury's post South Canterbury Finance open slather repayment policy

Mascot Finance, which became the first finance company with the government's retail deposit guarantee to be placed in receivership when it fell over in March 2009, will cost the taxpayer nearly NZ$38 million.

Mascot, whose loan book was comprised of 90% property loans with 86% of its loans secured by a second mortgage or lower, owed 2,511 investors NZ$68.5 million of principal when it fell over.

Mascot received a Crown guarantee on January 12, exactly seven weeks before it failed amid concerns that a major loan was unlikely to be recovered in full with a writedown of the loan set to result in a breach of the company's trust deed.

In their fourth report receivers Paul Munro and Brett Chambers of Deloitte say Mascot’s secured debenture holders have now been repaid 60 cents in the dollar of their principal, leaving NZ$26.1 million of principal and NZ$7.87 million of interest outstanding.

Unsecured depositors were owed NZ$3.3 million in principal and NZ$530,000 in interest. The receivers say 98% of Mascot investors have been paid under the Crown guarantee.

Munro and Chambers note that the Government decided, after the receivership of South Canterbury Finance on August 31, to repay all depositors of Crown guaranteed finance companies that default, including those that have already defaulted, regardless of any previous eligibility criteria in place for the Retail Deposit Guarantee Scheme.

“As such secured debenture stockholders and unsecured depositors that were previously deemed ineligible or had not submitted a claim to the Treasury will be repaid by the Treasury the remaining 40 cents in the dollar or principal outstanding plus interest owing,” Munro and Chambers write.

“The Treasury has not published a timeframe for making these payments however advise the receivers that they anticipate payments to be complete by the end of October.”

However, there wasn't expected to be any money available from the receivership to repay unsecured deposit holders, redeemable preference shareholders owed about NZ$3.85 million, ordinary shareholders who have NZ$15.2 million in the company, or unsecured creditors.

With the tab for unsecured depositors at about NZ$3.8 million, plus an outstanding NZ$26.1 million principal tab and NZ$7.87 million of interset owed to secured debenture holders, the taxpayer will stump up about NZ$37.8 million for Mascot investors.

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"...unsecured depositors that were previously deemed ineligible or had not submitted a claim to the Treasury will be repaid.."  Just our version of TARP, then.