Struggling lender to sell assets

Western Bay Finance, fighting to avoid receivership, has confirmed it will sell many of its assets to partially repay debenture stock holders owed $48 million.

Chairman Jim Smylie said the company had last month breached the ratio of net assets to net liabilities set out in its trust deed after the provision for bad and doubtful debts on its $50 million loan book ballooned to $12.4 million from $2.67 million.

Western Bay, with 3000 secured debenture investors, had since considered "a range of options to see if there was an alternative to receivership".

Smylie said the company had received a draft agreement "for the acquisition of a significant proportion of the trading assets and branch network for an amount approximating book value".

The company has 12 offices nationwide.

Southland Building Society chief executive Ross Smith this week confirmed that a subsidiary, Finance Now, had been negotiating to buy some Western Bay assets.

Smylie said the transaction was subject to a 15-day due diligence period, which began on July 17.

"If the transaction proceeds, then on settlement this will permit early repayment of approximately 60c in the dollar to the $48 million of secured debenture holders.

"This plus the eventual realisation of the remaining assets would, subject to the cost of realising these assets, create the prospect of a significant or nearly full repayment of debenture stock principal."

The company is believed to have suspended repayments of principal on mature debenture stock investments this month because of its difficulties.

Smylie last month blamed the troubles on a lack of fresh funds from investors because of negative publicity after the $324 million failure of Provincial Finance and the $25.5 million failure of National Finance 2000.

The three finance company troubles, all firms heavily involved in used car lending, are regarded by many commentators as the start of a "shakeout" in the industry. After spectacular growth during robust economic conditions, the sector faces increasing headwinds as the economy cools.

Western Bay, which began trading in 1988, is relatively well established. However, like National Finance 2000, it also became involved in selling used cars as well as financing them.

"We were the first finance company to get into car yards but we should have stuck to our knitting," Smylie said this year.

This week, Western Bay's trustee, Graham Miller, of Covenant Trustee Co, who has the final say on whether the company goes into receivership, said he was monitoring the situation.