St Laurence gives investors ultimatum

St Laurence says its running out of money and investors have the stark choice of receivership or to do a debt for equity swap like Hanover debenture holders.

Wednesday, April 28th 2010, 5:59PM

by Paul McBeth

St Laurence managing director Kevin Podmore says receivers will not get the best outcome for investors and that they would be better off accepting a debt-for-equity swap that would give them control of the company's assets than sending it into receivership.

The finance company, which is one of the last to try to trade its way out of trouble through a moratorium, will miss its next repayment to investors in July and will try to woo them into a debt-for-equity swap in a bid to avoid receivership.

Based on advice from McGrath Nicol, St Laurence's directors expect class A and B debenture holders would receive a further 26 to 38 cents in the dollar on top of the 10 cents they have already received over the next two to three years. Capital note holders would receive nothing on top of the 5 cents in the dollar they've already recovered.

"We would be, at the very minimum, looking to get what the receivers would return as a maximum," Podmore told depositrates.co.nz.

The finance company announced it is "unlikely" the next payment to debenture holders on July 1 will be met. The company wants investors to decide on whether or not to accept a debt-for-equity swap that will give them control of the finance company's assets by exchanging their debentures for shares in a St Laurence Holdings, a shell company set up last week. If investors don't accept the proposal, the company will be sent to the receivers.

Podmore said the company would probably report negative equity in its March accounts, and that "no-one was putting in new equity" though he had not that discussion with shareholder Dorchester Pacific.

Debenture holders already own the business in practice, and that the deal would give them 100% ownership of St Laurence's assets, Podmore said.

"Loans only make up about 25% of the company's assets, that's only about $40 million," he said. "Basically, the funds management and management contract are the main assets."

Investors will get a chance to vote on the deal in June, and Podmore expects an independent report by Grant Samuels on the offer will be prepared in the next couple of week.

St Laurence staved off the receivers last year after it agreed to a set of key performance indicators with trustee Perpetual Trust after additional loan provisioning sparked a review. Podmore was adamant that although the targets were challenging, they were achievable at an 11% return on assets needed for the company to meet its obligations in full.

In 2008, some 9,000 investors in St Laurence owed $250 million in frozen funds agreed to give the company until 2013 to repay 70% of its debentures. The other 30% of debenture holders are due to be repaid by 2021 and capital note holders by 2034.

 

Paul is a staff writer for Good Returns based in Wellington.

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