KEY POINTS:
Geneva Finance has struck a deal with its largest creditor, Bank of Scotland, that gives it time to recapitalise using some new cash from existing shareholders, and by converting some of what it owes to retail investors into new shares.
However retail investors will have to wait up to four years to receive all of their principal back.
Geneva, in November last year, secured a six-month freeze on repayments to its 3000 investors who are owed more than $138 million.
At the time it was feared Bank of Scotland, which is owed $43 million, would be able to demand full repayment as soon as the moratorium expired on April 30, kneecapping the company and leaving little, if anything, in the pot for retail debenture investors.
However, in a proposal Geneva unveiled yesterday, Bank of Scotland will be repaid $8 million over five months to September with the balance to be "rescheduled as a term loan on normal commmercial terms" repayable no earlier than April 2011.
Meanwhile, Geneva wants to convert 15 per cent of what it owes retail debenture investors, and 55 per cent of what it owes subordinated note holders, into new shares that will be listed on the NZAX alternative market.
Investors' principal will be converted at the rate of 36.49c a share, equivalent to the company's expected net asset backing after Geneva's existing shareholders accept the full financial impact of branch closures, staff redundancies, new financial reporting standards, and additional writedowns and bad debt provisioning.
The remainder of debenture investors' principal will be repaid in instalments over the next four years beginning with a 15 per cent payment in May.
Subordinated note holders will receiver their remaining principal in four payments over an 18-month period beginning in April 2011.
Debenture investors will receive 11 per cent interest on what they are owed and subordinated note holders 13 per cent.
"They can have full confidence that they will have their investments repaid in the form of shares and cash, while still receiving monthly interest," said Geneva chief executive Shaun Riley.
Under the proposal, which will be put to an investor vote on April 28, Geneva's existing shareholders who currently have $4.8 million in equity will tip in a further $4.44 million and will convert $7.67 million in existing preference shares into 7.76 million new shares in the company.
The Business Herald understands most of the additional funding from existing shareholders will come from Peter Francis.
Geneva's directors said the proposal "offers the best opportunity for debenture and subordinated note holders to receive full value for their investments, and is a superior alternative to receivership". Investment bankers Northington Partners, hired by the board to evaluate the plan, came up with a similar conclusion.
Geneva's directors said that during the moratorium, the company had built up cash reserves which were forecast to be $26 million by the end of the period, paid interest in full on all investments, strengthened its lending criteria, and reduced overheads.
The company is publishing detailed information on its website.
GENEVA'S REJIG
* 15 per cent of what debenture investors and 55 per cent of what subordinated note holders are owed will be converted into new shares and the company will list on the NZAX.
* Debenture investors will receive 15c in the dollar of what they are owed on May 31, with the balance in instalments over the following four years.
* Bank of Scotland, owed $43 million, gets $8 million back over the next five months, with the balance repaid by April 2011.
* Geneva's existing shareholders tip in a further $4.4 million in new cash and take a haircut on the conversion of $7.7 million in preference shares into $2.8 million worth of new ordinary shares.
