Strategic Finance investors' outlook grim as loan book sale stalls

Auckland's Soho Square property development, one of Strategic Finance's investments. Photo / Paul Estcourt

Investors in failed financier Strategic Finance could get as little as 12 cents in the dollar out of their debenture stock after bids for the firm's loan book fell short of expectations.

Receivers John Fisk and Colin McCloy of PricewaterhouseCoopers expect to recover between 12 per cent and 35 per cent of the principal amount owed to debenture holders after the sales process threw up sub-par offers, they said in a letter to investors.

The bottom-end of the range is less than one of the low-ball offers investors received from Australian-based Stock & Share Trading Co., which offered 15 cents in the dollar for up to $200,000 worth of debt in April.

"Given that the final or near final offers fell short of even our 'low' estimate of gross recoveries from the loan book, we consider that the best possible outcome for secured debenture investors will be achieved via the receivers continuing to realise the loan book," they said in their letter.

Last month, investors got their first payment of 2 cents in the dollar, a total amount of $7.4 million, after Strategic Finance received just $5.4 million from the $42 million it had recovered since March, most of which went to prior ranking creditors.

Strategic Finance was sent to the receivers in March by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since Dec. 2008.

The finance company missed its milestone repayment on January 7 after it failed to generate enough loan recoveries.

It had tried to get out of trouble in a Hanover-style debt-for-equity swap with South Canterbury Finance that would've given Strategic investors a mix of SCF debentures, shares and preference shares, but Perpetual chose to call in the receivers instead.

When liquidators John Cregton and Andrew McKay reviewed the firm in Aug., they reported Strategic Finance owed Bank of Scotland

$76 million and secured debenture holders $291.7 million, leaving a deficit after secured creditors of $121 million.

Including unsecured creditors, the book value deficit blows out to $195.5 million.