Rich lister's fund gets paid first

South Canterbury chief executive Sandy Maier says the Torchlight fund has been very supportive and has a legitimate first claim. Photo / Simon Baker

A private equity fund associated with rich-lister businessman George Kerr is to receive a $100 million taxpayer-funded payout from the Government in order to make the receivership of South Canterbury Finance run more smoothly.

Kerr's Torchlight Fund No1 LP is the largest of a number of prior ranking debtors who are in line to be paid first from the realisation of South Canterbury's assets.

The country's second-largest finance company was placed into the hands of receivers McGrathNicol yesterday after it failed to come up with a recapitalisation deal that would have allowed it to meet the conditions of its trust deed.

Finance Minister Bill English said the Government had loaned the receivers up to $175 million to allow it to pay out the first-ranking debt holders to ensure the Government would be first in line to receive any money back. But he admitted the Government was still in the process of signing off the deal.

"The transaction hasn't been completed yet to get us to that position," he said yesterday.

The Government was hoping to have it settled in the next few days.

Acting Secretary to the Treasury Gabriel Makhlouf said the payout was needed to ensure an orderly and well-managed receivership.

"This is the cleanest, quickest way to achieve an orderly and well-managed receivership that minimises the cost to taxpayers and minimises the impact on South Canterbury Finance suppliers and the customers it has lent money to," Makhlouf said.

"Without becoming the first-ranked creditor, there was a significant risk that the Crown would not recover as much for taxpayers as it could because of the scale and complexity of the South Canterbury Finance receivership. By creating the conditions for an orderly and well-managed receivership, we remove pressure from the receiver and protect taxpayers' interests."

The Government needs to recoup as much money as it can from the receivership to help pay for the costs of paying out up to $1.775 billion to debenture investors, bond holders and prior-ranking debtors.

Prime Minister John Key said on Monday he estimated the final cost of the receivership at $600 million, which would potentially mean the Government has to get back $1.175 billion from the sale of South Canterbury's assets.

Kerr, who ranked 29th equal on this year's NBR rich list with a personal wealth of $180 million, stepped in to help bail out South Canterbury last year with an initial $75 million loan arranged through the New Zealand Credit Fund.

That was extended to $100 million in June and transferred to Torchlight - a private equity fund managed by Perpetual Asset Management, part of Pyne Gould Corporation.

A spokesman for Torchlight said it was yesterday in the process of being repaid the full amount of the loan as well as fees and interest.

He would not confirm the full amount the fund would receive but said Torchlight was the arranger of the loan and had not put up all of the money itself.

"Torchlight doesn't usually talk about its investments. The No1 fund took a minority stake in the loan."

South Canterbury chief executive Sandy Maier said the Torchlight fund had been very supportive and had a legitimate first claim on the business.

"My understanding is that they will be paid out. It has been a successful investment for them."

But other shareholders were not so lucky. "Clearly it is a bad day for equity holders."

Preference shareholders who put in $100 million would get nothing and Southbury Corporation - Allan Hubbard's investment vehicle - is also likely to miss out. But the Crown's $1.6 billion payout to 35,000 depositors will include a $350 million payment to NZX-listed bondholders.

Mint Asset Management's Shane Solly said it was outrageous that some investors had been able to buy the bonds at a discount last week only to have them paid out yesterday.

"Those bonds were trading at quite deep discounts. Those people that paid 70c are [now getting a] dollar-something return."