1 Comment 1 Commentby Jenny Ruth
"Having given due regard to all of the relevant factors, we consider that the aggregate benefits to NZF shareholders of the proposed transaction outweigh the aggregate disadvantages," says corporate advisory firm Campbell Macpherson.
The transaction is worth about $5.23 million to the NZX-listed NZF, more than its current $3.3 million market capitalisation.
It will lead to a new business venture to take advantage of growth opportunities in originating mortgages in New Zealand, release cash to NZF and will relieve NZF of the requirement to fund credit enhancement of the next $100 million in new mortgage lending, Campbell Macpherson says.
It will also relieve NZF of the majority of risk around future increases in credit enhancement, insurance costs, distribution and renewing of the current $225 warehouse facility provided by Westpac which has been extended until October 2012.
Resimac is a well-established financial services company "with considerable expertise and experience in the mortgage origination and RMBS (residential mortgage-backed securities) market," it says.
The transaction will also reduced NZF's overhead cost because selected staff will be transferred to the new venture.
Negatives include loss of control of NZF's mortgage origination business, limited visibility around the projected performance and profitability of the new venture, lack of control over future dividend payments to NZF from the new venture and reduced appeal of NZF as a takeover target, the Campbell Macpherson report says.
If the transaction is not approved by shareholders - they are set to vote on it at a special meeting on December 12 - Westpac may not renew the warehouse facility or renew it on less favourable terms, triggering the default provisions in the facility, it says.
"NZF may not be in a financial position to meet its future interest payment commitments in respect of the 2016 capital notes."
The $18 million of capital notes, which pay 6% annual interest, represent the nearly 90% of notes rolled over in March because NZF was unable to repay them. The remaining notes were converted to equity.
The transaction is expected to be passed because shareholders including directors holding 56.6% of NZF shares already pledged to vote in favour of it.
NZF had $10.3 million of net equity at March 31 head of its finance company, NZF Money, going into receivership on July 22. NZF will write off its $5.1 million investment in NZF Money and will record a $10.7 million loss from discontinued operations in its accounts for the year ending March 2012.
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It reduces equity by $2 million by discounting the subordinated notes that NZF knows the value of. Further it sells their only profitable division, that produces NPBT of $2.5 million for nothing.
Shocking.