By Gareth Vaughan
Fisher & Paykel Finance hopes that despite offering to buy back the more than $100 million worth of retail deposits it has on issue, not a single deposit holder will take up its offer.
The offer is being made as part of a restructure at the consumer lender, which is ultimately owned by China's Haier. The restructure also includes plans to launch a $275 million receivables securitisation programme, which F&P Finance says is the first Australasian securitisation of a credit card type product in 10 years, and repay the bulk of its $320 million of bank loan facilities with ANZ, BNZ and Westpac. Of this, $211.4 million was drawn at March 31.
The restructure is outlined in F&P Finance's latest prospectus and a deposit holder meeting and vote is planned for July 9.
"This change (restructure) is a really positive step for us driven around the opportunity to continue to grow the business, it gives us (funding) diversification, it makes us more capital efficient, and it also gives us funding cost benefit," F&P Finance CEO Greg Shepherd told interest.co.nz.
"Not withstanding we're giving the early (deposit) redemption invitation or opportunity, it is our preference that not a dollar is taken out," Shepherd added, noting it was naive to expect this would be the outcome however. "It (deposit funding) will remain an integral part of our funding mix."
That said, Shepherd added that F&P Finance might ultimately get to the point where being a retail deposit taker becomes uneconomic because of the cost of being an non-bank deposit taker overseen by the Reserve Bank. As of March 31, F&P Finance had $110.7 million worth of deposits on issue, down from $117.8 million at December 31. Monthly reinvestment rates ran at about 76% in the March quarter.
If the restructure is approved by 75% of voting deposit holders on July 9, F&P Finance will offer them the option of having their deposits redeemed at the amount they invested plus accrued interest up to the date of redemption. Repayment under the redemption offer would occur in the two weeks after the securitisation programme is implemented, which is expected to be in August. The company has assumed that $20 million worth of deposits will be redeemed.
"If the restructuring proceeds, all deposit holders at 5pm on 4 July 2014 will have the option to retain their deposits or to have their deposits redeemed at the amount invested (plus accrued interest up to the date of redemption) with no penalties," F&P Finance says.
'A better position for depositors after the restructure'
Rhys Clark, F&P Finance's chief financial officer, said deposit holders will be in a better position after the restructuring than they are now.
"We think it's fair that we've offered a redemption offer so if people are uncomfortable with what we propose they have the opportunity to redeem their deposit early," Clark said. "We are not obligated or required to do this."
"At the moment both the banks and deposit holders rank equally, they have an equal claim on the assets of the charging group. Post securitisation, and we're looking to securitise circa $275 million, we will look to use that cash to pay down our banks. At the moment we have drawn under our funding facilities just in excess of $200 million. Obviously as a result, whilst there would be less assets in the charging group, the retail deposit holders would have a greater share of those assets that remain because the banks are no longer there," said Clark.
He said F&P Finance will retain some funding relationship with its banks, for working capital and to allow for growth, but he wasn't yet sure what size the loan facilities might be. In the prospectus trustee Guardian Trust says the restructure would "significantly" reduce assets currently used as security for F&P Finance's deposits.
The prospectus says cash raised by the sale of receivables will be used to repay $203.1 million of F&P Finance's bank loans, and to release $30 million of capital by way of a repayment of capital.
Overseas institutional investors eye securitisation
Meanwhile, Clark said F&P Finance's securitisation programme would be the first Australasian securitisation of a credit card type product in 10 years. Interest in the programme was coming from large overseas institutional investors, although he wouldn't name which countries they're from.
The securitisation programme will establish the Q Card Trust which would buy about $275 million of Q Card's around $400 million of receivables. Q Card is F&P Finance's credit card with fixed instalment and revolving credit purchase options. The plans is to issue $245 million of senior ranking notes issued to selected institutional investors and about $30 million worth of junior ranking notes to immediate parent Fisher & Paykel Finance Holdings Limited.
Clark said the New Zealand dollar denominated notes will be issued for terms of three to five years, and priced at a margin over swap rates. The Q Card Trust will get a credit rating from Fitch or Moody's, and will sell tranches of notes with credit ratings ranging from AAA to BB. F&P Finance itself has a BB+ credit rating with a stable outlook from Standard & Poor's, with its annual review due in August. A BB+ rating is S&P's highest speculative, or junk, rating. See credit ratings explained here.
"We have a 90 day commercial paper programme that supports our Farmers (Card) business, it's $200 million. Whilst it's 90 days, to give you an idea (on securitisation pricing), that issues at around 60 basis points over BKBM," said Clark.
The securitisation programme would help F&P Finance better match its funding tenure to its lending book, given it'll have tenure of three to five years versus typically six to seven months for deposits, and up to 25% of its bank loans maturing annually, Clark added.
'A more capital efficient structure'
The restructure also involves establishing "a more capital efficient structure" for the group. It'll see F&P Finance transfer its insurance business, Consumer Insurance Services Ltd - which it values at $22.1 million - from its "charging group" (which includes Fisher & Paykel Finance Ltd and charging subsidiaries), to Fisher & Paykel Finance Holdings Ltd in September. Furthermore, some or all of the group's intangible assets will be transferred to Fisher & Paykel Finance Holdings Ltd in November, and Equipment Finance Ltd - which has a $30 million balance sheet - may also be "released" from the charging group. If this last step happens it'll be done by June 30, 2016.
"This allows us to better to view the performances of the companies economically on their own right," Clark said.
Founded in 1973, F&P Finance started out with the primary activity of renting TVs under the F&P Dealer Rentals Ltd name. In 2003 it acquired the Farmers Trading Company’s finance and insurance operations in a $311 million deal. Haier took ultimate control of F&P Finance in November 2012 after taking over its sharemarket listed parent, whiteware maker Fisher & Paykel Appliances.
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