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Geneva Finance's fate to be decided Friday

Geneva Finance, the first finance company to enter a voluntary moratorium in November 2007, has warned investors if they do not approve the lender’s proposed capital restructure it is “likely” the company will be forced to wind down.

Tuesday, March 23rd 2010, 5:04AM

Share, debenture, and note holders will meet this Friday to decide the company's future and vote on whether or not to accept its proposal to defer repayments and gradually remove its $30 million facility with BOS over the next five years, managing director David O'Connell told investors in a letter.

"It is the board's opinion that if the plan is not approved by investors it is likely that the company will either enter into a management wind down or have a receiver appoint," O'Connell said. "Under the scenarios it is highly likely that the shares in Geneva will be worthless, and there is the likelihood that debenture holders and note holders will not receive all of their principal and/or all their interest."

In January, Geneva announced its future was uncertain after its wholesale funder warned it probably would not extend its $35 million facility with the finance company. The news prompted rating agency Standard & Poor's to cut the lender's rating from CCC to CC and put it on creditwatch negative, giving the finance company a 50:50 chance of a further downgrade. S&P has advised Geneva that if the plan is approved it will lower the rating to SD (selective default).

Still, if the plan is approved, BOS will agree to waive Geneva's two breaches of financial covenants permanently after saying it will wait until the outcome of this week's meetings before deciding whether to call in its loan.

Investment banker Northington Partners concluded the return to investors would be fair.

"By approving the repayment plan, stockholders will effectively retain the potential upside relating to the future value of the shares," the report said. "The downside for stockholders if the plan is unsuccessful is relatively limited."

Under the terms of the proposal, debenture holders are being asked to defer about half of their rescheduled repayments, while note holders are being asked to put off their repayment to October 13 through April 15.

Geneva Finance has been one of the more successful finance companies to enter a moratorium, repaying investors some $65.4 million since 2007. If the plan is approved, another $4.6 million is expected to be paid to debenture and note holders by the end of the month.


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