Allied Farmers may default on $7.5m loan

Allied Farmers managing director Rob Alloway Photo / Dean Purcell

Allied Farmers, the finance company hobbled by the collapse in value of its loan book, may not be able to repay $7.5 million owed to its failed Allied Nationwide Finance unit when it comes due on July 1.

Managing director Rob Alloway is seeking talks with the receivers of ANF about the potential default, which would be the third such event.

The ANF receivers, Kerryn Downey and Andrew Grenfell of McGrath Nicol, have reserved their position and are considering options, according to Alloway's statement.

Allied Farmers entered into two loan agreements with ANF in October last year, converting its existing debt factoring, credit enhancement and related party loan arrangements.

All of Allied Farmers' assets are secured by a general deed covering the loans.

The parent company had expected to be able to sell enough assets to repay the $7.5 million, the current outstanding balance of an $8.9 million facility that was granted to another unit, Allied Farmers Rural.

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

He blamed challenging conditions "driven by market saturation of finance company assets."

A default would follow a default revealed on April 6 that Allied Farmers is disputing related to the sale of an ex-Hanover Finance receivable.

The purchaser hasn't settled the deal and claims Allied Farmers has a guarantee obligation of $7 million.

There was also an alleged default in relation to the receivership of property developer Matarangi Beach Estates in November.

Alloway said Allied Farmers has made progress in sales of properties at the Clearwater and Jack's Point developments, allowing it to reduce debt to the properties to $10.4 million from $13.3 million and expects to repay a further $4.7 million with pending sales that are slated to settle by June 30.

He said the company is also confident that its rural business will generate "solid revenue and growth in some areas."

"This is important because the rural business assets are a component of ANF's security package," he said.

Allied Farmers acquired loan assets from Hanover and United Finance in a debt-for-equity swap at the end of 2009 in a transaction it had hoped would propel the company into the NZX 50 Index.

Since then, the loans have lost more than three-quarters of their near $400 million value.

The company paid for the loans by issuing almost 2 billion shares to the hapless Hanover investors.

The shares last traded at 1.4 cents apiece, valuing Allied Farmers at $28.6 million.