Dorchester announces 3yr repayment plan, no interest paid

Dorchester Pacific has announced its moratorium plan which calls for deferrring debenture repayments for three years. The plan provides for returning 20% of investors' deposits before Christmas. Interest would not be paid and Dorchester would continue some lending if the plan is accepted by investors. "Under the proposal, Secured Debenture Stockholders would be repaid their NZ$164 million principal in 12 payments over 3 years with an initial payment of 20% prior to Christmas, followed by 10 quarterly payments of between 5% and 7.5% and a final payment of 17.5% on 30 September 2011. Unsecured Noteholders owed NZ$8m would be repaid in two instalments with an initial payment of 10% prior to Christmas and a final payment of 90% on 30 September 2011," Dorchester said. No accrued or future interest would be payable to investors but secured Debenture Stockholders would participate in a profit share payment of 50% at the end of the 3 years. Investors will vote on whether to accept the plan on December 17. "The focus of the plan is to return principal to investors as quickly as possible. The business will continue to operate as a going concern but on a much reduced scale. No new lending on property will be undertaken over the term of the plan. Consumer lending will be restricted under lending covenants in the plan and will also be subject to a new Lending and Credit Policy recently developed and supplied to the Trustees. In developing the plan a no-new-lending option was modelled but the Board believes that a no-new-lending scenario is simply not viable," Executive Director Paul Byrnes said. The Dorchester Board said it believed the deferred repayment plan will provide a better outcome for investors and the company than receivership or liquidation. "The Board considers that the plan provides benefits and options which would not be available under a receivership or in a liquidation. Under the plan the business will continue to operate as a going concern. Key management will be able to be retained and loans will be able to be realised in an orderly way. This would give the Dorchester Group the time needed to restructure its balance sheet, raise new equity, secure wholesale funding lines, and participate in any industry consolidation that may eventuate within the finance sector," Chairman Barry Graham said. Staff numbers and wages at Dorchester have been lowered over the last three months, with the executive team dropping from 6 to 2. If the plan is approved, it will be monitored by PricewaterhouseCoopers.