Strategic Finance managers finalise buyout from Allco

Strategic Finance's managers, including CEO Kerry Finnigan and executive director Jock Hobbs, have finalised a deal to buy back Strategic Finance from Australia's troubled Allco HIT investment fund for NZ$25 million in cash and 8 million shares they own in Allco HIT. Under the deal, which is supported by Strategic's banker BOS International (Halifax Bank of Scotland), Strategic's managers will also inject NZ$15 million in new funds into Strategic. The deal is conditional on Strategic's debenture investors, subordinated noteholders and preference shareholders agreeing to a plan to convert the majority of their investments into NZX listed bonds and the balance being repaid over the next two years. BOS International will also increase its lending facility to NZ$150 million from NZ$100 million. Strategic hopes to hold a meeting of investors in October to vote on the plan. Allco HIT shares last traded at 10 cents a share (meaning the 8 million shares are worth NZ$640,000) and are down from over NZ$4 a share at the beginning of last year. Here is the full statement below.

The Board of Strategic Finance announce that it has been advised that a Sale and Purchase Agreement has been signed today (Friday 29 August 2008) by the purchasing consortium comprising the former owners and senior management of Strategic Finance and Uberior Ventures (Asia) Pty Limited an investment vehicle of BOS International (Australia) Limited and Allco HIT and its relevant subsidiaries, Strategic Investment Group Limited and Strategic Finance Limited. The key transaction terms are summarised below. This transaction is conditional among other things on a capital restructure of Strategic Finance involving new funds being introduced by the consortium and additional funding lines provided by BOS International (Australia) Limited. In addition secured debenture holders, subordinated debt holders and perpetual preference shareholders will be asked to alter the terms of their investment. The capital restructure terms are in the process of being finalised and may differ in some respects from the indicative terms previously disclosed. However, it remains the intention of the consortium to propose a pro rata conversion of the majority of existing debenture stock into tranches of proposed NZX listed secured bonds, with the balance to remain as debenture stock and repayment of the principal in three equal instalments over a period of no longer than 24 months. An independent committee of the board of Strategic Finance has been established to consider the terms of the proposed capital restructure, comprising Denis Thom and David Wolfenden as Independent Directors of Strategic Finance. The committee is being advised by Bell Gully and KordaMentha. Strategic will continue to keep the market informed as the transaction progresses. Key Transaction Terms. - Clarence Investments Limited ("Clarence Investments") has agreed terms and conditions with Allco HIT Limited ("AHL") to purchase 100% of the shares in Strategic Investment Group Limited ("SIGL") which is the parent company of Strategic Finance Limited ("Strategic Finance"). - Clarence Investments will be owned by the previous owners and existing senior management of Strategic Finance (80.01%) and Uberior Ventures Asia Pty Limited ("HBOS Vehicle"), an investment vehicle of BOS International (Australia) Limited which is a member of the HBOS Group, one of the world's largest financial services organisation providing services to more than 23 million customers. Uberior will have the option to increase its shareholding to 49.99% to reflect its financial contribution to Clarence Investments. - The key terms of the transaction are (all amounts are NZ dollars): 1. Clarence Investments will pay AHL purchase price of $25m in cash plus transfer 8.0 million shares in AHL currently held by various Strategic Finance executives. 2. Clarence will inject $15.0 million of new funds into Strategic Finance in a form which will be subordinated to Strategic Finance's existing debenture, subordinated notes and perpetual preference shares. 3. BOS International (Australia) Limited will increase its current debt facilities to Strategic Finance from $100.0 million to $150.0 million. 4. Strategic Finance and AHL have historically co-participated in a number of loans that were originated by Strategic Finance. Strategic Finance will acquire these loans on Completion Date (face value approx NZ$67.3M) for NZ$50.2m, with $10.0 million of the purchase price being deferred for a 2 year period. 5. The parties have entered into a binding Sale and Purchase Agreement and the transaction is conditional upon: - A waiver being received under the New Zealand Takeovers Code in respect to Strategic Finance perpetual preference shares. - Overseas Investment Office approval. - Approval of AHL shareholders at a Special Meeting to be convened. - A Special Meeting of the holders of Strategic Finance perpetual preference shares approving by special resolution the release of the existing guarantee provided by AHL in respect of the perpetual preference shares with effect from Completion of the transaction. - Special Meetings of the holders of Strategic Finance debenture stock and subordinated notes approving by extraordinary resolution a capital restructure of existing debenture and subordinated note investments. - Approval of Perpetual Trust Limited, as trustee under Strategic Finance's debenture trust deed. - Completion of a tax due diligence to the satisfaction of the purchaser. - The Shareholders Agreement entered into by the purchasing consortium being unconditional. - Strategic Finance issuing debenture stock to AHL to secure the deferred payment of part of the co-investment loan purchase price - AHL and BOS International (Australia) Limited entering into a new facility agreement. - The current Strategic Finance employee share scheme being wound up. 6. The intention is for the meetings of the AHL shareholders and the security holders in Strategic Finance to be held in October 2008 with a targeted completion date for the transaction of shortly thereafter subject to receiving the required approvals. Subject to receiving the consent of Perpetual Trust Limited to the proposed capital restructure, an explanatory memorandum will be provided to Strategic Finance security holders in advance of the security holder meetings. This explanatory memorandum will comprise: (a) Details of the terms of the capital restructure proposal; (b) A notice of meeting of relevant securityholders; (c) An investment statement and prospectus which will include a description of the terms of the new securities to be offered and the amendments to the existing debenture trust deed; and (d) An independent appraisal report in relation to the terms of the capital restructure.