Bridgecorp payback cash came at a price

Rod Petricevic. Photo / NZ Herald

Bridgecorp struck multimillion-dollar deals with other finance companies for money to pay back investors before its collapse, the High Court at Auckland heard yesterday.

The trial of three former Bridgecorp directors - Rod Petricevic, Rob Roest, and Peter Steigrad - accused of misleading investors continued yesterday, when the company's internal audit and risk manager, Indra Kumar, appeared as a Crown witness.

The directors face 10 Securities Act charges brought by the Financial Markets Authority, accusing them of making untrue statements in the investment statements, registered prospectuses and extension certificates of Bridgecorp and Bridgecorp Investments.

The three deny the allegations in a trial that is expected to take until March. Fellow directors Gary Urwin and Bruce Davidson have pleaded guilty to the charges.

Yesterday, Mr Kumar took the court through millions of dollars of late payments Bridgecorp made from February 2007 until it collapsed that July, owing 14,500 investors $459 million.

Mr Kumar said Bridgecorp was experiencing a "liquidity crisis" over this period.

Reinvestment in the company had declined and some borrowers were defaulting on their loan repayments.

Against this backdrop, Bridgecorp made arrangements with other finance companies to get money to pay investors, Mr Kumar said.

At times this involved Bridgecorp selling the rights to loans it was owed in exchange for millions of dollars upfront.

However, Bridgecorp was required to pay interest on the money it was advanced at rates higher than those it was collecting from borrowers, he said.

Bridgecorp was typically receiving 12 per cent interest from borrowers, but was paying these finance companies rates of up to 15 per cent, Mr Kumar said.

Furthermore, because Bridgecorp paid interest to these finance companies monthly but collected interest from borrowers over a longer period, it was faced with "an immediate short-term cash disadvantage".