KEY POINTS:
St Laurence Finance's 9000 debenture investors are being asked to accept up to 13 years of drip-fed repayments on the $250 million they are owed by the company, which wants to begin lending again in a bid to earn enough money to pay them back.
Details of the plan mailed to investors show that St Laurence plans to convert 70 per cent of debenture holders' principal into "Class A" stock and 30 per cent into "Class B".
Class A stock would be repaid at the rate of 2c a quarter beginning in April next year with a conditional 28c in the dollar repayment in November 2011. A final repayment of outstanding principal will be made in November 2013. Repayments on Class B stock will also be made at the rate of 2c a quarter but there is no obligation to repay the outstanding amount until 2021. Capital note holders would receive 1c a quarter and were not likely to be repaid until 2034.
St Laurence plans to pay interest, at 8 per cent a year initially, but only once class A and B principal has been fully repaid.
An additional repayment on Class B and capital note principal may be made annually from 2014 onward and in a "put option", investors may require St Laurence's parent Auguste Finance, under certain circumstances, to buy out part or all of their investment. Furthermore, St Laurence is also proposing to resume lending if it is able to maintain a cash buffer of at least $10 million.
St Laurence managing director and Auguste Finance's controlling shareholder Kevin Podmore yesterday said a shortage of other market funding and the credit crisis, "offers us the opportunity to achieve higher returns for a relatively lower risk".
The new lending policy would be monitored by the board and trustee PricewaterhouseCoopers, which was commissioned to assess the recapitalisation plan, said it may eventually return $1.34, including interest, per dollar of principal to debenture investors against 83c under a receivership. However, PWC pointed out: "The benefit for the higher level of cash payments under the plan is offset to a large extent by the time it takes to make those payments."
Podmore yesterday said it remained his objective to repay 100 per cent of investors' principal plus interest.
"In order to achieve this objective we need time to maximise the return to investors by having our loans repaid in an orderly fashion, and to preserve and add value to the funds management businesses."
Should investors back the management plan in a December 5 vote, only to see the company placed in receivership further down the track, Podmore and associated interests have pledged up to $20 million of their own money to help make up any shortfall. They have also pledged to tip in $10 million of assets to bolster the company's balance sheet should investors accept the plan.
PWC said the put option, guarantee and capital injection had "questionable value" given it comprised interests in property assets, such as Auckland's Hilton Hotel, whose value was by no means rock solid, "but it is better that they are available to investors than not available".
FINANCE FIRMS SEND OUT PROPOSALS
After months of waiting, investors in finance companies that ran aground largely as a result of a property market meltdown are now seeing the moratorium proposals they were promised.
St Laurence mailed its proposal to investors last week as did North South Finance.
Eric Watson and Mark Hotchin's Hanover Finance and sister company United Finance are expected to announce their proposal "within days, barring last-minute hitches", a spokesman for United's trustee Perpetual Trust said yesterday. North South's proposal goes before an investor vote on December 1.
Insolvency specialists Korda Mentha, which evaluated the North South moratorium proposal and which will continue to monitor the company if the proposal is approved, noted that it would retain the power "at the trustee's request, to investigate any breaches by the company of the terms of its trust deed and relevant legislation" as would happen under a receivership.
