KEY POINTS:
Geneva Finance's debenture investors face a tough choice between management's ability to deliver $1.16 per dollar invested in an ambitious four-and-a-half-year restructuring plan or receivership, which would probably return $1 to 80c over three years.
The consumer finance company which defaulted on investor repayments in November yesterday unveiled its restructuring plan which would see debenture investors, who are owed $98.96 million, receive up to $1.16 for each dollar of principal in a combination of new shares in the company and interest and principal payments over four-and-a-half years.
Subordinate note holders, owed $12.46 million, could receive up to $1.20 per dollar invested over a five-and-a-half-year period.
Investment bank Northington Partners, which was hired by Geneva's board to produce an independent review of its recapitalisation plan, found that under a receivership scenario, debenture investors would probably be repaid 80 to 100 per cent of their principal over three years, while subordinated note holders would get nothing.
Northington said the proposal offered debenture investors "a good chance of recovering the full value of their existing investment", and should provide a "cumulative return that exceeds the likely outcome from the receivership scenario".
However, Northington's opinion was "largely based on a review of the model prepared by Geneva for the future financial performance of the company under the reconstruction proposal".
That model was "subject to a relatively high level of uncertainty" but was reasonable "assuming no significant deterioration in the current economic environment".
Under the proposal, 15 per cent of debenture investors' principal would be converted into NZAX-listed shares, while 55 per cent of subordinate note holders' $12.455 million would also be converted. The shares would be issued at 36.5c representing the company's net asset backing after restructuring.
But Northington noted that the shares' future value "is subject to considerably more uncertainty than the future repayment of the restructured debenture principal and could in extreme cases be close to zero".
Northington said it was likely that shares would be affected over the short term by large numbers of debenture and subordinated note holders looking to liquidate their holdings.
Geneva investors will vote on the proposal on April 28.
