Adviser changes mind on buyout offer

By ANNE GIBSON

Money Managers' clients who are owed $9.8 million on a Christchurch apartment deal are now being urged to vote in favour of a proposal to be put to them tomorrow.

The advice from Money Managers executive Doug Somers-Edgar reverses his earlier opposition to the proposal, which would see Park Terrace bondholders accept a deal from a mystery buyer who wants to pay $9.8 million for apartments in the complex.

The deal would give bondholders, who have been waiting two years to get their money back, between 67 and 70 per cent of their original capital.

Somers-Edgar initially said it was a bad deal and bondholders should reject it.

But on Friday he changed his mind and urged bondholders to vote for it, saying he feared that if they turned down this offer they might get even less money back.

"The pity about this situation is that the mystery purchaser will benefit from the project's potential," Somers-Edgar said.

He said he had changed his mind after threats by the Bank of New Zealand to call in its mortgage on the property and by major unsecured creditor Mainzeal to place the developer in liquidation.

His written statement also said that the apartment development company had advised that if bondholders opposed the sale, it would explore ways of completing the deal without their consent.

If that failed, it would immediately sell the remaining apartments by tender and would seek a court order releasing bondholders' security.

"If the vote goes against the sale and any of those parties carry out their threats, the return to bondholders will be even less than if the proposed sale proceeds," he said.

Independent valuations had estimated that individual sales over five years would return up to $13.2 million, enabling loans to be repaid and returning $1.10 to bondholders for every dollar invested.

Somers-Edgar said the proposed bulk sale would result in a return of around 70c.

Money Managers marketed the Park Terrace bonds, which partly financed the project, selling the Christchurch investment to its mainly North Island-based clients.

A key feature that supported the financing was $23.3 million of pre-sold apartments.

When the bonds were issued, the developer expected the proceeds of pre-sold deals, once completed, would be sufficient to redeem the $7.37 million bonds and pay interest.

However, when the development was completed in 2000 and buyers were asked to complete their contracts, many failed to do so.

The development company obtained High Court judgment against some defaulting buyers, requiring them to reimburse losses once they are quantified by subsequent sales.

The development company has been unable to redeem the bonds or pay interest since July 2000 and now owes bondholders $9.8 million.

This ranks behind a partly repaid bank first mortgage which is now in default.

Most of the unsold apartments have been leased short-term to offset ongoing bank charges.

Park Terrace bondholders are due to meet at 10.30am tomorrow at the Auckland Showgrounds to vote on the deal.