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Returns to investors in failed Five Star Consumer Finance will be severely diminished because of large loans made "outside normal commercial lending practices" which have now gone bad, the company's receivers say.
In their first report on the company's affairs, Richard Agnew and Anthony Boswell of PricewaterhouseCoopers said Five Star's 2300 debenture investors, who are owed $54.43 million, could eventually receive just 26 to 40 per cent of their outstanding principal.
A number of the 72 commercial loans, which account for $41 million of Five Star's $65.52 million loan book, were "high value", "complex" and appeared to have been made "outside normal commercial lending practices," Agnew and Boswell said.
Management's most recent statement of financial position details provisions of doubtful debts of just over $1 million, which Agnew and Boswell said was "significantly understated".
"A substantial portion of the additional provisions for doubtful debts required relates to the commercial loans.
"The need for additional provisions for doubtful debts is reflected in the estimated recovery range."
Working through Five Star's commercial loan book would be a time consuming process, the receivers said.
Meanwhile, various unsecured creditors, owed $530,000, are unlikely to receive anything.
Five Star collapsed in late August, just days after telling the Business Herald it was sound.
Meanwhile, the receivers of Western Bay Finance, the third in the string of 10 finance company collapses over the past 18 months, said they would make a final payment to debenture investors of $2.7 million.
That takes total repayment of principal to $40.2 million or 82c in the dollar. Brendon Gibson and Grant Graham of Korda Mentha said that exceeded their original estimate of 75c to 80c in the dollar.
Elsewhere, ratings agency Standard & Poor's has raised Geneva Finance's credit rating to CC.
This follows Monday's investor vote approving management's moratorium plan which will see them forego any repayment of principal for 6 1/2 months.
S&P lowered its rating on Geneva to D on October 16 when it was told of the moratorium plan, which effectively meant Geneva would technically default on repayments to investors.
Geneva remains on "Creditwatch" which means its rating could change again soon.
Geneva yesterday released the audited results of the investor vote on the moratorium, which reveal strong support for the plan.
Geneva had to receive at least 75 per cent approval from at least 50 per cent of all investors in each of three classes of its investment products.
Eighty four per cent of debenture holders voted, of whom 99 per cent voted in favour.
Support from the 93 per cent of subordinated note holders and 86 per cent of on call "Galaxy Savings" investors who voted was unanimous.
