Investors holding bonds worth more than $21 million in the Metropolis property development in Auckland have been delivered some bad news by the trustee.
Tower Trust has told bondholders that they are likely to get back half of their capital invested in the bonds and none of the interest.
This predication is the worst case scenario of an earlier letter written to investors. Until now Tower hasn't been able to put an accurate figure on what investors will get back because the development company, owned by Andrew Krukziener, has refused to provide financial details.
Tower Trust general manager Glenn Clark says the trustee finally received information on the valuation of unsold properties in the development, plus details of costs associated with running the development company.
"This is the first time since the default in repayment of the bonds in May 2001 that we have been provided with the level of detailed information necessary to make an informed independent judgment as to the financial position of the development company," he says.
The information shows that the total value of unsold properties is insufficient to repay bondholders and that costs incurred by Krukziener in running the development company have been met by the first mortgage loan.
One of the problems for the trustee is that it hasn't had any power to act on behalf of investors as the bondholders are unsecured creditors, behind the ANZ Bank which has a first mortgage on the property.
Clark says the bank, owed between $4 million and $5 million, has been repaid but the situation hasn't changed.
Because the ANZ wouldn't refinance the project the developer has refinanced it with alternative money from Structured Finance (NZ) Ltd, a company related to Doug Somers-Edgar, whose financial advisory firm Money Managers sold most of the Metropolis bonds.
Clark says this deal has been done in such a way as to preserve the sub-ordination rights of the first mortgagee, thus restricting Tower from taking enforcement action against the development company.
"Tower did not consent to the assignment of the ANZ Bank's facility and securities to SFL," he says.
Clark says under the refinancing Krukziener is able to draw down funds that will rank ahead of the bondholders and there is nothing he can do to stop this.
"One of the risks that bondholders face is that further funds will be drawn upon to fit out or further develop the remaining property without necessarily improving the overall recovery on (bondholders') investment."
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