George Kerr’s Torchlight invests NZ$22 mln in Allan Hubbard’s Southbury

George Kerr invests NZ$22 mln with Allan Hubbard 

Torchlight, the Pyne Gould Corp-owned (PGC) property funds manager run by major PGC shareholder George Kerr, has agreed to invest NZ$22 million in secured convertible notes in Allan Hubbard’s Southbury Corporation, which will in turn invest that money in equity in Southbury’s South Canterbury Finance. (Updated with details on expired prospectus)

Torchlight has an option to increase this investment to NZ$37.5 million by the end of April. However, South Canterbury CEO Sandy Maier said South Canterbury was still looking at “various alternative transactions and structures” to ensure it obtains a government guarantee extension beyond early October and can meet Reserve Bank rules to continue as a deposit taker. PGC owns Marac Finance, which already has a government guarantee extension and aims to get a full banking license.

South Canterbury Finance CEO Sandy Maier told Interest.co.nz he was confident the Treasury would grant South Canterbury an extended guarantee shortly and that South Canterbury had various options to increase its capital strength to meet tougher new Reserve Bank rules for capital adequacy. One option could include creating a ‘bad bank’ separate from South Canterbury’s ‘good bank’, he said.

Some commentators have said South Canterbury still needs to raise NZ$300 million in fresh capital to comply with Reserve Bank rules, but Maier said that was not necessarily the case. “There are many ways to skin a cat,” he said.

Meanwhile, South Canterbury Finance confirmed it had stopped taking in new money on Thursday after its prospectus expired on Wednesday.

The Timaru-based financier aimed to have the prospectus renewed later on Thursday or next Tuesday after an audit approval, Sandy Maier told Interest.co.nz. South Canterbury Finance removed its “Investment” section, its investment statement and its prospectus from its website early on Thursday after the expiry of the prospectus. “It should be back live later today or Tuesday,” Maier said.

“We don’t like to be out of the market, but it’s just a physical thing of getting the audit signed off,” he said, adding that any money received would be put in trust until the prospectus was ‘live’ again.

Here is the full release from South Canterbury below:

South Canterbury Finance today announced that it had agreed terms, along with its parent company, Southbury Corporation Limited, for an additional injection of equity capital. Southbury Corporation will issue $22 million of secured convertible notes to Torchlight Fund No. 1 LP. In addition, Torchlight Fund No. 1 LP has an option to increase this to a total of $37.5 million by 30 April 2010. Southbury Corporation will use the proceeds to subscribe for the same dollar value of new fully paid ordinary shares in South Canterbury Finance, and therefore will retain 100 percent ownership of South Canterbury Finance. As a result South Canterbury Finance will receive additional capital of $22 million in cash. South Canterbury Finance Chairman Allan Hubbard welcomed the investment by Torchlight Fund into Southbury Corporation notes.

“This is a vote of confidence in South Canterbury Finance and its future prospects based on the Fund’s understanding of the business and the wider business cycle. We are very pleased to have the Fund’s involvement.” Torchlight Chairman, George Kerr says: “The restructuring of financial institutions requires innovative solutions to complex situations. The Torchlight team is pleased to support South Canterbury Finance through this investment.” South Canterbury Finance Chief Executive Officer Sandy Maier says the new capital is a further step in the significant progress already made to restructure the capital base of the Company.

“Much has been achieved since the appointment of new independent directors and a new management team late last year.”

Achievements include:

*a significant group restructuring with the provision of $152.5 million of new equity in February 2010 in conjunction with the acquisition of two businesses with a record of strong earnings in Helicopters NZ Limited and Scales Corporation Limited

* a purge of the loan book and increased provisioning for impaired assets totalling $203.7 million * improved liquidity to make early repayment of the $US100 million USPP facility * retention of a “BB” credit rating from Standard & Poor’s (albeit with an outlook of Creditwatch negative)

* an internal operational division of activities into three groups: the core well-performing finance business, the impaired or non-performing loan book including the majority of the property portfolio, and the investments group which includes Scales Corp, Helicopters NZ and the company’s extensive dairy assets. The latest capital raising has been arranged by Forsyth Barr. Taking into account the $22 million of new equity provided by Torchlight Fund No. 1 LP, just over $200 million in total of new equity has been injected into South Canterbury Finance since December 2009.

“This is a substantial amount of progress in a short period of time and a major recapitalisation of the company. We are continuing to consider the various alternative transactions and structures available to us as we look forward to achieving the requirements for non-bank deposit takers,” Mr Maier says.