Receivership possible for Strategic Finance after massive loss; full payout now unlikely

Failed property financier Strategic Finance has reported an audited annual loss of NZ$175 million for the year to June 30, just six weeks after predicting a full year loss of NZ$98 million. Strategic Finance said it had decided to book provisions for losses on property loan values and cashflows of NZ$146 million because of what it described as "a disconnect between property valuations and the market value of assets." Strategic had written second mortgages on a range of resort, commercial and residential developments in Auckland, Queenstown and Fiji over recent years, including North Shore's Sentinel Tower, Fiji's Hilton and Ponsonby's Soho Square. Many of the developments are either derelict, half completed or not sold, leaving Strategic as a hostage to first mortgage holders, many of whom are banks reluctant to allow development to continue while units on plans are unsold or unleased. Strategic Finance, which is in a moratorium and had predicted a 100% payout for debenture holders, said in its full accounts republished below that its trustee, Perpetual Trust, could put the property financier into receivership because it may fail to meet some of the deadlines for repayments over the next 5 years. Strategic Finance had NZ$291 million of debentures on issue and frozen in its moratorium at the end of June. It said on page 50 that current management forecasts were that debenture holders would receive between 85 and 93 cents in the dollar over the five years of the moratorium and there would be no interest paid. On July 14 Strategic said it was on track to repay debenture and deposit holders 100% of their capital and interest, as scheduled in the December Moratorium agreement.

Strategic was due to make a priority facility payment to Bank of Scotland International of NZ$24.7 million by December 31 this year and a payment to debenture holders of 9 cents in the dollar on January 7, 2010. It said on page 8 that there was uncertainty about making those payments because loan repayments may not be made on time and that the Trustee was reviewing Strategic's ability to meet the requirements of the moratorium agreed in December last year. "Should the outcome of this review indicate that the company may not meet the requirements of the Moratorium, this could lead to a review event and the Trustee may take actions which could results in the company being placed into receivership," it said. The annual report showed 12 employees were paid more than NZ$100,000 in salary in the last financial year, including 8 paid more than NZ$200,000. Chief Executive Kerry Finnigan was paid a salary of NZ$550,000 for the year, down from NZ$820,000 the previous year. Total personnel expenses for the year was NZ$4.54 million, down from NZ$6.22 million the previous year. There was NZ$71.9 million worth of interest and fees that were capitalised in the financial year, up from NZ$35.8 million the previous year. Strategic Finance Full Year Result