Money Managers managing director Doug Somers-Edgar is part of a group fronting up with $1 million to help rescue the Ballantyne property bond issue his company promoted.
Tower Trust put the Ballantyne group of companies, which were developing a golf course and residential development near Katikati in the Bay of Plenty, into receivership in June because they had defaulted on payments to investors.
Currently the 600 bondholders in this development are owed their capital of $8 million plus interest. They got their last interest payment in September 1999 and are still awaiting the return of their capital and the final interest payments.
Tower Trust says three rescue packages have been put up for Ballantyne. The Somers-Edgar one (known as the Paynter Proposal), is being done in conjunction with Christchurch-based Richmond Paynter and trumps the other two proposals.
One which is still on the table is a $3.65 million cash offer from Mr Gray and Mr Schofield. The other, known as the Charta proposal, has now been withdrawn.
Tower says the Paynter proposal plans to fund the development and marketing of the Ballantyne resort with a $1 million unsecured interest free loan and a $1.5 million mortgage arranged through a bank or other financial institution.
Under the base case scenario bondholders are projected to receive $6.28 million, or the equivalent of 78.5c in the dollar, of their capital originally invested.
This return could be higher if the golf course is sold for more than $750,000 or additional residential sites are developed along the fairway.
Tower says the unconditional cash offer equates to a return of 42.65 cents in the dollar.
Somers-Edgar has put up the proposal as a business venture but also as a benevolent gesture to clients.
The major downsides to the Paynter proposal are that there are no guarantees provided and bondholders will rank behind the financiers which provide the $1.5 million, although bondholders are effectively providing the majority of the finance for development.
Completion of the development and the sale of the golf course is being done at the bondholders' risk.
The repayment schedule has bond holders well down the list. First up are legal fees and real estate costs. Next 10% of gross sale proceeds go to the company behind the Paynter consortium. After that comes the trustee's fees, then the first and second mortgages will be repaid. At that stage 60% of proceeds will go to the company behind Paynter and 40% to bondholders until the $1.5 million mortgage is repaid.
The ratio then changes to 85:15 in favour of bondholders until the $1 million interest free loan is repaid. Anything left over is split 75:25 in favour of bondholders.
Tower Trust estimate that by the time the $1 million interest free loan is repaid bondholders will have received $5.2 million of their $8 million capital back and no interest.
It says the success of the proposal will depend on the skill of the Paynter consortium. The workout proposal has a three year time limit.
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