Loan default likely: Allied Farmers

Allied Farmers managing director Rob Alloway. Photo / APN

Allied Farmers - the embattled owner of the Hanover and United Finance loan books - said yesterday it was unlikely to be able to repay a $7.5 million loan to its collapsed finance arm by a July 1 deadline because it was having trouble selling assets.

A decline in forecast sales to June 30 this year was due to challenging conditions driven by market saturation of finance company assets, Allied Farmers said in a statement to the NZX.

The difficulty selling assets has affected Allied Farmers' ability to fully repay, within the time intended, a loan to subsidiary Allied Nationwide Finance [ANF], which was put into receivership last August. Allied Farmers said it was "engaging with the receivers of ANF with a view to resolving any outstanding issues and future arrangements".

In October Allied Farmers announced it had entered into two loan agreements with Allied Nationwide Finance.

Existing arrangements were converted into two separate loan facilities with Allied Nationwide Finance under which Allied Farmers assets were secured by a composite general security deed.

The first loan facility, initially totalling $8.9 million, was granted to Allied Farmers Rural and now had an outstanding balance of $7.5 million which is due for repayment by July 1.

The second loan facility was granted to Allied Farmers. An outstanding balance of $11.7 million is due for repayment by July 1 next year.

When the loan agreements were made, the Allied Farmers Group's financial forecasts showed the group would earn enough from asset sales to fully repay the first loan on time.

"The board has reviewed the forecasts and these indicate it will be difficult to conclude sufficient realisations by June 30, 2011, in order to fully repay the balance of the first loan by the due date," the group said.

But some assets would be sold by then, reducing the outstanding balance, the company said.

Allied Farmers Rural not fully repaying the first loan facility on time would constitute a default under the Allied Farmers Group's funding arrangements with Allied Nationwide Finance.

That would be on top of an alleged default in relation to a disputed guarantee by Allied Farmers, and another in relation to the receivership of Matarangi Beach Estates, both previously disclosed.

Allied Nationwide Finance had told Allied Farmers it had reserved its position in relation to those defaults.

Allied Farmers managing director Rob Alloway said the sale of properties at Jacks Point and Clearwater meant it had been able to reduce debt on those properties from $13.3 million at the end of last year to $10.4 million now.

Sales contracts that were expected to settle before June 30 would result in further debt retirement of about $4.7 million.

"Furthermore, we are confident that, in such a strong rural environment, our rural business will be able to generate solid revenue and growth in some areas," Alloway said.

Hanover & United Finance were absorbed into Allied Farmers in a $400 million deal in December 2009. Allied Farmers, originally a stock and station company, listed on the New Zealand Stock Exchange in 2002.