The funds have been drawn down to repay US$50 million of South Canterbury's US$100 million private placement facility, whose investors had the right to demand repayment when the finance company lost its investment grade credit rating. The remaining US$50 million is to be repaid over five months.
The transaction fits with part of Perpetual's strategy of taking on investments deemed too risky for traditional lenders but which offer the prospect of high returns for sophisticated investors willing to take a longer-term view. Forsyth Barr arranged the new facility.
"Investments that are perceived to be too difficult for banks often create opportunities for fund managers," said George Kerr, Perpetual's chairman and a major shareholder in Pyne Gould. "The fund has been established to focus on exactly this type of situation."
Perpetual is in the process of taking impaired loans off the books of Marac, the Pyne Gould finance arm that it aims to transform into a bank. Perpetual's chief executive John Duncan has said Torchlight may grow into a fund of about $500 million.
Standard & Poors cut South Canterbury's credit rating to BB+ in August - a speculative, or junk rating, citing the firm's exposure to riskier investments. The downgade triggered an "event of review" for its banking facility and the US private placement funding.
South Canterbury chairman Allan Hubbard said he is "pleased to have this new facility provided by investors who understand the business cycle and the opportunities for South Canterbury.""We are continuing to progress our own restructuring plans and will make further announcements when we are able to," he said.
South Canterbury is receiving "a good response" from investors to its prospectus for securities and deposits offering yields of up to 8.5%, he said.
(Businesswire)
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