And now for the hangover...

The Noel Leeming Group is one of several companies that have breached their banking covenants over the past couple of years. Photo / Glenn Jeffrey

In most of the deals it has done in New Zealand, BOS International has not been the only bank involved. But even a cursory glance down its list of known clients shows a remarkably common theme: many have breached their banking covenants at some stage over the past couple of years.

Covenants, which include things such as how much debt a company has compared to equity, and how much money it has to cover interest payments on its loans, are put in place by banks as an early warning system, indicating stress in a business.

Banks can usually demand immediate repayment of their loans if covenants are breached, but are more likely to consider other alternatives first. The worst case scenario is usually receivership.

So how are BOS International's clients faring? We took a look at some of their accounts.

* Australian private equity firm Gresham paid around A$180 million for Australia's largest luxury boat builder, Riviera, in 2002. Ironbridge also took a stake. An extra A$25 million was pumped into the firm in late 2008. When Riviera was placed in receivership last May, it owed BOS International and ANZ around A$180 million. The company was put up for sale but has recently been withdrawn, and is believed to have halved its debt over the past year.

* Australian private equity firm PEP paid $135 million for the Whitcoulls and Angus & Robertson book chains in April 2004. It has since added Australian newsagency Supanews and 30 Borders stores to the group. The company, renamed REDGroup, last year extended its senior debt and working capital facilities with BOS International and Germany's WestLB until the end of this year. Its latest accounts show its pre-tax profit dropped to just $308,000 at the end of August, down from $5.3 million the previous year.

* The Noel Leeming group, which includes the Bond & Bond chain, was bought by Gresham in August 2004. In 2007, there was speculation it was trying to sell the group to either Harvey Norman or Woolworths. Its latest accounts show the group made a pre-tax loss of $6.2 million last year - down from a $9 million profit the previous year. At the end of March 2009 its bank borrowings totalled $90 million, and in April it renegotiated its terms after breaching its covenants. Gresham provided another $15 million of equity and $14.9 million in loans, and the loan repayment date was shifted to June 2011. In October 2008 its insurance arm, NLG Insurance, stopped writing new contracts and its cash was shifted elsewhere in the group. Fitch downgraded the insurance arm's credit rating to "B", which is classified as "weak", with a "significant risk" of problems. Fitch noted last month that although NLG Insurance had improved its cash position, it was still reliant on a large inter-company loan, and was unable to cash in $500,000 it had in government bonds because they were being held by the public trustee for the protection of policyholders. It was likely to improve its position over the next year, and would no longer be a risk by November 2012, Fitch said. The effect of tougher solvency requirements due to come into effect for non-bank finance lenders at the end of this year was unclear. "Under its most onerous interpretation, NLG Insurance would most likely require a significant level of additional capital. However, following discussions with management, Fitch is aware of alternative strategies available to the company should dispensations from the new regime not be granted."

* Australian private equity firm Catalyst is believed to have paid around A$80 million for the Australasian arm of flexible packaging company AEP Industries in May 2005. The company, since renamed Aperio Group, has four plants in New Zealand which made a pre-tax loss of $9.8 million last year. At the end of June, the division had $97 million of borrowings, and a deficiency in net assets of around $11 million. According to its directors, its Australian parent has pledged "financial and operational support" to enable it to remain solvent.

* BOS International, ANZ and NabCapital were among the banks that were owed A$96 million when Australian discount retail chain ADR collapsed in January last year. ADR, which includes the stores that used to be owned by The Warehouse in Australia, was bought out of receivership by Kathmandu founder Jan Cameron.

* Catalyst was reported to have paid $366 million for one of New Zealand's largest glass suppliers, Metropolitan Glass, in 2006. BOS International is believed to have acted as the sole lead arranger and bookrunner for the deal, but syndicated out most of the $300 million in loans to nine other banks. The company, since renamed Metro GlassTech, made a pre-tax losses of $7.1 million in 2008, and $38.8 million in 2009. In March last year it had negative working capital of $246 million, and breached its banking covenants. With $287 million due for repayment within the next year, a decision was made to amend the terms of its preference shares, which resulted in them being reclassified in its accounts as equity, rather than a liability. In October it renegotiated the terms of its senior and junior loan facilities. Notes to the accounts revealed the company's loans were "fully drawn", and it was relying on a working capital facility of $8 million. These facilities now expire in August 2012.

* BOS International helped finance Catalyst's purchase of a 43.5 per cent stake in clothing and homeware retailer Ezibuy in March 2007. In 2008 the group made a pre-tax profit of $14.6 million, and in January last year it bought New Zealand clothing chain Max Fashions. By the end of June it had made a loss of $5.7 million and had twice breached its banking covenants. At that stage it had borrowed $102 million from a $112 million facility. It has since renegotiated its loan agreements, and shareholders put in an extra $5 million.

* Australian private equity firm Ironbridge is said to have borrowed $530 million, mainly from ANB Amro, Royal Bank of Scotland and BOS International, to buy MediaWorks from CanWest in June 2007. The company, which owns TV3, C4 and around half of New Zealand's radio stations, has not yet filed its accounts for 2009, but its 2008 accounts showed a pre-tax loss of $42.1 million - down from a loss of $6.6 million the previous year. In December it confirmed a major restructuring, which included pumping an extra $70 million into the business, and a shake-up in its shareholding and management.

* In March 2008 BOS International backed a management buyout of the Bluestone Group, which was founded in Australia in 2000 to specialise in sub-prime loans and reverse mortgages. It expanded into New Zealand in 2003 but stopped lending in early 2008, by which time its mortgage arm had negative equity of $11.7 million. In August 2008 it bought $150 million worth of impaired loans from the receivers of Provincial Finance. Last year its Kiwi founder, Alistair Jeffery, shifted the company's headquarters to England and it now specialises in debt servicing.

* The Dominion Finance Group was placed in receivership in September 2008, owing 6000 investors $224 million. The receiver's latest report shows $55 million was owed to BOS International and ASB Bank in September 2009, of which $1.4 million had been repaid.

* BOS International agreed to a $35 million facility for troubled finance company Geneva Finance, which froze $142 million of investors' money in October 2007. It has since reduced that facility to $30 million. Debentureholders have received half their capital back, and the deadline for full repayment has now been shifted from September 2012 until March 2015.

* BOS International is one of three secured creditors owed more than $100 million following the decision to place the company behind stages two and three of Queenstown's Kawarau Falls Station development into voluntary liquidation in March. Stage one was placed in receivership in March last year. BOS International was the first mortgagee of stage one, and was reported to have been owed $180 million. The $1 billion project was the brainchild of Auckland developer Nigel McKenna and was to have eventually included a conference centre, four hotels, plus several apartment buildings with more than 1000 units.

* Several entities linked to Hamilton property developer Sarvee Group were put in receivership in November 2008. The receiver's report shows BOS International was owed more than $54 million, plus another $19 million from a related company, Custodian Electrical Group.

* BOS International loaned around $92 million to property specialist Strategic Finance, and provided much more to Strategic clients. It was also a banker to Strategic's parent company, Allco HIT, in Australia. The Allco Finance Group collapsed in November 2008, after reporting an A$1.7 billion net loss. Strategic froze almost $300 million of investors' money in December, and was placed in receivership last month. BOS took over some of Strategic's first mortgages, including the Fiji Beach Resort and Spa on Denarau Island. BOS provided an initial $45 million facility to Auckland-based developer Neville Mahon for that project, which was itself placed in receivership last September.

* BOS International has been a major backer of New Zealand's most ambitious residential property development - Pegasus Town near Christchurch. Bob Robertson's Infinity Investment Group is jointly developing the site with Brookfield Multiplex. BOS was reported to have committed $107 million to the project in 2006, and another $151 million in 2008. The original plans were for a town designed for up to 7000 people on 420ha of land. So far more than 700 sections have been sold, and 200 people are living there. About 50 fully-serviced sections are currently for sale.

* New Zealand Oil and Gas had a $125 million term loan and letter of credit facility with Westpac and BOS International for the Kupe project. BOS withdrew from their portion of the facility last year.

* Together with BNZ, CBA and HSBC, BOS International was a senior financier in the proposed acquisition by PGG Wrightson of a 50 per cent stake in Silver Fern Farms. However, the deal never went ahead.

* In Australia, BOS International had the biggest exposure to Sydney property developer Austcorp, which collapsed last May owing at least A$500 million. It was also one of several banks owed A$800 million when forestry and cattle investment group Great Southern was placed in receivership around the same time.