PwC says Strategic optimistic, but gives conditional support for moratorium

Independent adviser Pricewaterhouse Coopers has warned that Strategic Finance's moratorium proposal to repay investors all of their capital and 8% interest is optimistic, but gave it conditional support ahead of a vote on December 22. PwC noted that the moratorium was bound up with the support of Bank of Scotland International (Australia) Ltd (BOSIAL), which will be repaid NZ$25 million first because of a 'prior charge' security. BOSIAL has NZ$392 million of first mortgages on projects where Strategic has also lent money. These include the Soho Square project in Ponsonby and the Hilton Hotel project in Fiji. PwC said this was a positive aspect of the moratorium given a cooperative stance from BOSIAL was necessary given 60% of Strategic's loans were in default at October 31 and 58.5% of its loans were second mortgages behind first mortgages worth NZ$770 million. PwC estimated its worst case scenario would see debenture stock holders repaid 82 cents in the dollar but no interest, while its best case scenario saw repayment of 99 cents in the dollar with no interest. Those wanting the full moratorium proposal with the PwC report should email me and I can send a full copy, which has yet to be posted on a website. Meanwhile Strategic Finance CEO Kerry Finnigan told interest.co.nz Strategic's management team had been significantly reduced and costs were expected to drop from around NZ$5 million a year to NZ$1.5-2.0 million a year by year five. Finnigan said a receivership scenario would in theory see lower costs of NZ$1 million to NZ$2 million a year, but he was sceptical given the likelihood of high costs for consulting and other services. "They won't be able to get away with running a NZ$500 million loan book with a few accountants in the back room," he said. * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.