Strategic Finance suspends withdrawals, eyes restructure

Strategic Finance has announced it has suspended withdrawals and is considering a capital restructure, despite having the backing of Bank of Scotland International for a management buyout just last month. This came after investors withdrew almost NZ$200 million inside 7 months. (Updated to include funds outflow) Strategic announced on July 17 it had agreed indicative non-binding terms with Bank of Scotland for the bank to take a 19.9% stake in the property financier with an option to buy up to 49%. This deal involved Bank of Scotland doubling its loan facility for Strategic to NZ$150 million and was part of a management-led buyout of Strategic's current owners, the Australian financial services and investment fund, Allco HIT. Strategic said Bank of Scotland now wanted a capital restructure that would require the consideration of debenture and note holders, which suggests some sort of debt for equity swap similar to the one orchestrated by Bank of Scotland at Geneva Finance. Strategic CEO Kerry Finnigan was not immediately available for comment.

Under the Geneva Finance recapitalisation plan and moratorium, debenture holders eventually agreed to swap 15% of their NZ$98.4 million of debenture investments for shares in Geneva, that were later listed on the NZX. BOS International, which is owned by Edinburgh-based Halifax-Bank of Scotland (HBOS), backed the Geneva plan that saw it convert a NZ$42 million bank facility into a NZ$35 million term loan over 3 years. Strategic, which was set up in 1999 and initially run by NZRU Chairman and former All Black Captain Jock Hobbs, now has over 13,000 investors with NZ$300 million invested in secured debentures. (This is updated from an earlier version which said Strategic had 20,000 investors with NZ$487 million in debentures as at December 31.) Strategic's biggest loan was to the developer of the Denarau resort in Fiji where Bank of Scotland has a first mortgage. We reported in late June that the Fiji project was partially completed and beginning the sales process for the third and final stage of resort villas. Strategic was not to be repaid all its money until that third stage is completed and there was uncertainty about when that might be because initial pre-sales have been slow. Design and feasibility for the third stage had not started by the end of June. 99% of Strategic's loans were for property development or property investment. This takes the number of finance companies and mortgage trusts who have collapsed or been frozen since May 2006 to 39. The amount of investments at stake is now NZ$5.797 billion and the number of investors involved is now over 178,000, according to our definitive "Deep Freeze" list. Here is the full statement from Strategic. The statement did not make clear whether interest payments would be suspended.

As announced on 17 July 2008 a consortium consisting of the original owners, senior management and BOS International has entered into negotiations for the acquisition of Strategic Investment Group Limited, the immediate parent of Strategic Finance. Those negotiations have been ongoing and the Board of Strategic Finance understands that in addition to a change of ownership the transaction will involve a capital restructure. This will require consideration by Strategic's securityholders of debenture stock, subordinated notes and perpetual preference shares. While the negotiations have been continuing there has been a further material decline in the property finance market sector and reinvestment rates. To allow these matters to be concluded and to protect the position of the securityholders, the Board of Strategic Finance announce that effective from today it has suspended redemptions of its secured debenture stock and subordinated notes. Strategic Finance has also ceased accepting subscriptions for debenture stock and subordinated notes under its current prospectus and investment statement.