KEY POINTS:
MFS Pacific Finance, now called OPI Pacific Finance, will have a $334.8 million shortfall in the amount it needs to pay back stockholders and creditors unless it can broker a loan agreement with its ultimate parent, the financially troubled Australian firm MFS.
The finance company yesterday revealed the extent of its financial woes as part of its moratorium proposal sent out to 12,000 debenture and unsecured noteholders.
Investors have been waiting since February to find out the details after Pacific Finance defaulted on payments due to be made at the end of January because MFS, now Octaviar, could not meet a promise to bail it out.
Pacific Finance said it had $476 million in cash, loans and investments but independent advice indicated only $122 million may be recoverable, leaving a shortfall of $334.8 million.
The company wants stockholders to vote on a three year wind-down at a meeting on May 19 to take advantage of a $23.1 million initial payment offered by Octaviar. If the moratorium is not agreed to the $23.1 million will go back to Octaviar.
But Pacific Finance has not yet signed an agreement with Octaviar to secure further payments.
Octaviar has until August 29 to sign a standstill loan agreement with Pacific Finance to replace its current put option agreement for which it has already put aside A$246 million.
Jason Maywald, chief executive of OPI New Zealand of which Pacific Finance is a subsidiary, said Octaviar was in the process of dealing with a number of large creditors.
"We have a deadline of August 29 and in the event we don't the trustee has the ability to review our situation," he said.
If the agreement is not signed Pacific Finance must take legal action to pursue the put option it has in place with Octaviar.
The trustee would also have the ability to send the company into receivership.
Under a receivership secured debenture holders who are owed $256.7 million could get back up to half of their money whereas unsecured noteholders owed $56.7 million would likely get nothing.
The moratorium proposal also takes the unusual move of asking debenture holders to allow Pacific Finance to repay principal to noteholders and creditors before they are paid the interest due during the moratorium.
Maywald said the company believed it would be in the best interests of debentures holders to agree to the proposal as noteholders and creditors could take steps to put the company into liquidation if they did not see some benefit in it leaving debenture holders with less in their pockets.
"We have struck this balance to get the moratorium through."
"I think investors will realise the alternative is receivership. We believe this moratorium proposal is the best possible opportunity to recover funds."
Maywald said if the agreement with Octaviar was reached it would realise assets over the next three years and pay lump sums to creditors allowing Pacific Finance to make quarterly payments from September.
At the same time Pacific Finance would realise its assets. But many are at risk because they are linked to other Octaviar companies.
Of the $476 million it has in assets $18.5 million is cash, $279 million direct loans, $167.5 million is an advance to OPI Pacific Investment and $10.7 million is in investments linked to five other Octaviar investment vehicles.
Of its direct loans 87 per cent are second mortgages taken out on property investments, mainly in Australia, behind first mortgages taken out by the Octaviar Premium Income Fund.
Octaviar owns 38.5 per cent of OPI New Zealand.
The Pacific Finance meeting will be held on May 19 at Auckland's Ellerslie Convention Centre.
THE PROPOSAL
* Stakeholders get a $23.1 million payment from Octaviar within seven days of the vote.
* Octaviar signs a standstill agreement by August 29.
* Quarterly payments start from September.
* OPI Pacific winds down its business by June 2009.
