Gloom for junk-bond victims

By ANNE GIBSON

Investors who sank $5.4 million into junk bonds financing the Hartner-built Viaduct Carpark in downtown Auckland are likely to get only a quarter of their money back.

Retrieving just $1200 for every $5000 bond sold in the parking building in March 2000 is the best possible outcome for bondholders, say their representatives, who propose selling the property to Wellington financier St Laurence Group.

Bondholders will get a chance to vote on the plan on Monday at the Auckland Conference Centre in Remuera.

In 2000, Viaduct Carpark, whose directors were Hartner Group financial controller Mike McQuarrie along with Wayne and Gaile Hartner, marketed junk bonds to help pay for the part the bank would not loan on the development.

They solicited for cash or cheques to be mailed to their Onehunga offices, just months before the company went under.

Hartners joined another developer, Terry and Marion Mikkelsen and their Phoenix Properties, to promote the junk bonds, telling investors they would receive regular payment, 13.85 per cent interest a year and all their money back in March 2005.

Covenant Trustee was appointed trustee for the bondholders. Bayleys Real Estate marketed the deal through its financial services firm.

Hartners then raised the $14.2 million to build the carpark on the fringe of the Viaduct Harbour area, alongside the Tepid Baths in Sturdee St.

The new building was a source of pride to Wayne Hartner, who displayed an international award for the building in the foyer of his offices.

But the certificate did not hang on the wall for long before the receivers moved into the Onehunga premises and the company was liquidated.

Investors were faced with losing their money as they stood well behind principal financier ANZ Bank, which was owed $8.1 million.

The distressed bondholders formed a committee last July, headed by a team of three financial experts whose clients had bought the junk bonds: Kelvin Syms, managing director of Auckland financial services company North Plan; Paul Newson, senior adviser at Sterling Portfolio Management; and Brett Wright, general manager of Equity Investment Advisers.

"It would be fair to say that following our election in July, the outlook for this investment was particularly bleak as the monthly turnover [of the carpark] had dropped to around $80,000 per month, which not only did not provide bondholders with a return but did not cover the ANZ Bank interest plus costs," the three wrote in a May 10 letter.

"The good news is that monthly turnover has risen steadily since that date to in excess of $120,000 per month."

To get at least some money back, Syms, Newson and Wright have proposed that an offer of $9.6 million be accepted from property syndicator St Laurence.

(A December 1999 valuation from Colliers Jardine's Paul Bendall said the building was worth $13.5 million).

The best that the bondholders can do is form a new entity and sell to St Laurence, which will then offer new bonds to the current bondholders.

"St Laurence, through its agent NZPS Investments Ltd, has offered to purchase the carpark for $9.6 million, which is $400,000 less than its current valuation and is in line with the costs that would be incurred in otherwise disposing of the property, and the discount is required to cover the cost of syndicating the property," said Syms, Newson and Wright.

"The sale price would allow $1200 of each $5000 bond to be repaid following repayment of the principal owing to the ANZ Banking Group of $8.1 million."

The bank has approved the plan.

Out-of-pocket bondholders will be asked, but not obliged, to subscribe for 1098 $5000 units in the new ownership scheme.

But investors not wanting to put more money into the property would realise only $1200 per bond.

"Unfortunately, if the proposed sale is not approved, then it is likely that the bank will exercise its rights as a first mortgagee and proceed towards selling the carpark.

"This is likely to realise a sale price considerably less than the offer."