NZF Money's receivers say the commercial and residential lender's loan book was "significantly" overvalued and contained a "significant level' of unrealised bad debts.
Receivers Grant Graham and Brendon Gibson of KordaMentha say this in their second report. They also say that, based on preliminary estimates, debenture holders are likely to get back between 25% and 42% of the NZ$16.4 million they're owed. It's "extremely unlikely" there'll be a return to unsecured creditors.
A subsidiary of the sharemarket listed NZF Group, which also owns 50% of Mike Pero MortgageHoldings, NZF Money was tipped into receivership in July last year by trustee Covenant Trustee Company due to an anticipated trust deed breach after NZF Group failed to secure needed short-term funding.
NZF Money had NZ$28.3 million worth of loans, prior to the deduction of bad debt provisions, at the time of its receivership.
The receivership came after NZF Group had announced that NZF Money was "working through options" to address the impact of an expected NZ$3.5 million contract between one of its borrowers and a buyer not settling as expected. It also came after NZF Money was forced by the Financial Markets Authority (FMA) to pull its prospectus, meaning it could no longer raise money from the public. The FMA had raised concerns about NZF Money’s disclosures on asset quality and liquidity.
In their new report Graham and Gibson say they've received NZ$2.2 million in repayments from borrowers, have paid NZ$283,000 of inter-company debts, have sold a NZ$900,000 subordinated note, and realised NZ$5.5 million worth of fixed assets. A total of 20 loans with a face value of NZ$27 million remain outstanding with collections from borrowers continuing.
"It is apparent from the receivers investigations that the NZF loan book was significantly overvalued as at the date of receivership and that the loan book contained a significant level of unrealised bad debts," Graham and Gibson say.
"Accordingly, the level of recoveries achieved will be well below the face value of the loan book."
NZF Money was not in the government's retail deposit guarantee scheme when it was put into receivership. It was in the initial scheme, but was not granted entry to the extended scheme.
Preferential employee entitlements of NZ$33,000 have been paid in full and the Inland Revenue Department has a preferential entitlement to NZ$550.23. Meanwhile, Hillview Trust, which is associated with NZF Money director Pat O'Connor, claims an interest in the proceeds of "certain loans" in priority to Covenant Trustee's interest.
"The receivers do not yet agree Hillview Trust's view is valid," Graham and Gibson say.
In their first report, released last September, Graham and Gibson said there was likely to be a "material" impairment on NZF Money's loan book and they couldn't forecast the likely level of recovery from the loans that'll be available to repay the company's debentures.
NZF Group in dispute with Mike Pero co-owner Liberty
Meanwhile, last month NZF Group revealed it had received a Statement of Claim from parties representing Liberty Financial Limited, the co-owner of Mike Pero Mortgages, alleging NZF Group was in breach of a joint venture agreement between the two established in June 2006 to own Mike Pero Mortgages.
"NZF (Group) believes that the action taken by Liberty is an unwarranted attempt to force NZF to compulsorily transfer its shareholding in Mike Pero Mortgages to Liberty, which would be required if NZF had triggered an event of default under the joint venture agreement. NZF believes that the statement of claim made by Liberty is without merit and has filed a statement of defence in the High Court."
It added that it remained committed to supporting the joint venture activities of Mike Pero Mortgages Limited and Mike Pero Real Estate Limited and will "vigorously defend" all claims made by Liberty.
"NZF would like to emphasise that this dispute is between the two joint venture partners, which is unlikely to have any adverse impact on the business activities of Mike Pero Mortgages Limited, Mike Pero Real Estate Limited or their individual franchisees. NZF is unable to release any further information to the market at this stage regarding the nature of the claim, as the matter is now the subject of litigation."