KEY POINTS:
Geneva Finance is to list on New Zealand's alternative exchange after investors overwhelmingly voted in favour of the company's capital restructure plan, stopping it from heading into receivership.
Several hundred debenture holders and subordinated noteholders attended a meeting at Auckland's Ellerslie Convention Centre yesterday to hear what the board had to say about its proposal.
But for many others the decision had already been made. Around 55 million proxy postal votes came in 88 per cent in favour of accepting the restructure plan before those in the room had even put pen to paper.
In the end 93.56 per cent of investors voted for the proposal, slightly less than the 98 per cent vote in favour it received to allow it to go ahead with the moratorium proposal it put forward in November last year.
Geneva director Brian Walshe told investors Geneva had been forced to go to a moratorium after funding problems were escalated by the failure of a number of finance companies.
Most of the company's loans were made on two or three-year terms and in 2005 and 2006 these were aligned with its debenture maturity and reinvestment rates, he said.
But as soon as sentiment became negative the reinvestment rate turned, exacerbated by larger collapses such as Bridgecorp.
Geneva took out a $30 million loan with the Bank of Scotland in the middle of 2006 and when funding got tighter it increased the loan facility to $50 million
At the same time it entered into discussions with other groups to try and securitise some of its loans and take them off its loan book.
But in September last year reinvestment levels became unsustainable. Geneva needed to draw on the $50 million facility quickly because of repayment requests and then it was hit further after a ratings downgrade by Standard and Poors.
"It became our Achilles heel," Walshe told investors.
So much so that the company has decided not to have a rating when it lists on the NZAX.
The rating drop meant it also broke a covenant with the Bank of Scotland International and a moratorium was proposed to freeze redemptions while the business tried to get back on its feet.
Walshe said the company had four aims while it was in moratorium and three of those had been achieved.
It continued to pay interest to its investors, while restructuring the business through the closure of 22 branches and the redundancy of 150 staff.
The business managed to generate a cash reserve of $26 million which will be used to pay back investors.
But it failed to find a debt and equity partner to help the firm out of its poor financial position.
Director David O'Connell said the liquidity crisis had cost the company an estimated $11.8 million. Alongside a bad debt write-down of $6.8 million and changes to the international reporting standards which had cost it $2.6 million, the company had gone from $13.2 million in subscribed capital down to $4.2 million.
But under the capital restructure plan the company hoped to make a net profit of $2.7 million next year, increasing to $3.2 million in 2010 and $3.4 million in 2011.
O'Connell said the firm's lending would be much more conservative. "The company plans to stick to its knitting and do its basic job really well," he said.
APPROVED
* Geneva will list on the NZAX
* 15 per cent of debenture principal and 55 per cent of subordinated note principal will be converted to ordinary shares.
* The remaining investment will be repaid in a scheduled plan with 40 per cent of outstanding debenture principal repaid by April 2009.
* Interest will continue to be paid monthly at a minimum of 11 per cent for debenture holders and 13 per cent to subordinated note holders.
* The Bank of Scotland gets $8 million back over the next five months with the balance repaid by April 2011. Geneva's shareholders tip in a further $4.4 million.
