St Laurence statement, letter 'breach trust deed' (Update 5)

St Laurence Ltd's trustee says neither a statement released by the company nor a letter sent to investors today had its approval which is required under the failed finance company's trust deed. (Adds Perpetual Trust comments and Kevin Podmore's reponse, background on money owed and repayments to date, plus St Laurence letter to investors and McGrath Nicol advice) Matthew Lancaster, head of corporate trust at St Laurence’s trustee Perpetual Trust, told interest.co.nz representatives of the firm would be meeting with St Laurence tomorrow to discuss the letter and press release which advocate a debenture for equity swap to stave off receivership. He was both "surprised" and "disappointed" at St Laurence's actions. "We specifically asked that it not be sent," Lancaster said. "Neither the letter or statement had our approval." "They’re operating under a deed that requires our approval for any update provided to investors and that letter didn’t have our approval and in fact we’d specifically asked that it not be sent," Lancaster said. He declined to comment further until after tomorrow's meeting. However Podmore said St Laurence had complied with what it thought the rules were.  Perpetual Trust was supplied with a copy of today's announcement and letter on Friday. St Laurence hadn't heard back from the trustee. "We're basically to give them a copy of anything we send out and that's what we've done. In fact we originally provided them with a copy of what we were going to send out last Friday. We hadn't heard from them so we thought we'd get on and send it out," Podmore said. "We've complied with what we understood to be the requirements." He said he would be happy to meet Perpetual Trust staff, who want to meet at 3pm tomorrow, to discuss the issues. Earlier St Laurence said due to the "extremely difficult" property market it was running out of equity and wants investors to swap their debt for equity in a new company to prevent a receivership. The company warned it won't be able to meet future scheduled moratorium payments to investors. St Laurence said this meant its debenture and capital note holders now effectively own the company. St Laurence therefore plans to call a meeting in June or July to ask investors to to swap their debentures and notes for shares in St Laurence Holdings Ltd, which has been set up to acquire St Laurence Ltd's assets. "If this proposal is not approved St Laurence Ltd will be placed in receivership," the company said. Grant Samuel has been commissioned to provide a report on the merits of the alternatives investors' face. Meanwhile, in a letter to investors (see below) St Laurence managing director Kevin Podmore warns the company faces insolvency. Podmore also notes the company's directors have taken advice from McGrath Nicol on the indicative value that could be realised for investors under a receivership. "McGrath Nicol’s analysis indicates that the funds management business would be realised at a large discount to book value and that the limited guarantee provided to Secured Debenture Stock holders by myself and the Corporate Guarantors has minimal realisation value," Podmore writes. St Laurence, whose 11,000 investors owed about NZ$250 million approved the company’s moratorium repayment proposal in June 2008, has made its first five quarterly repayments on schedule with the last on April 1. Secured debenture holders have received back principal totaling 10 cents in the dollar and capital note holders have received principal worth 5c in the dollar. Both investor groups also received interest covering a period in 2008 when St Laurence was putting its moratorium plan together. The next repayment was scheduled for July 1. Based on McGrath Nicol's advice, and St Laurence's own analysis, Podmore says receivership would deliver Class A and B secured debenture holders a further 26 to 38 cents in cash over two to three years with capital note holders getting nothing. Read St Laurence's full statement below

The board of St Laurence Limited (SLL) today announced that due to the extremely difficult property market, the Company would soon be in a position where it would run out of equity and as a result would not be able to meet some of its obligations to investors under its November 2008 Recapitalisation Plan. Consequently, its Debenture Stock and Capital Note investors were now effectively the owners of the Company. Accordingly, SLL proposes calling a meeting at which investors will be asked to approve the exchange of their SLL Debenture Stock and Capital notes for shares in St Laurence Holdings Limited, which has been established to acquire SLL’s assets. If this proposal is not approved SLL will be placed in receivership. To assist investors in making a decision SLL’s Directors have commissioned an independent report from Grant Samuel to analyse the merits of the alternatives they face. SLL Managing Director Kevin Podmore says, “We appreciate this is not what investors signed up for nor the outcome we had hoped for when we put forward the Recapitalisation Plan in 2008. We understand that investors want their money back and in the current market we sincerely believe that exchanging their debt investment for equity is the best way to achieve this. It will allow us to complete our sell down programme in an orderly manner, but more importantly preserve the value of SLL’s funds management business and hence provide a better outcome for our investors.” Read St Laurence's letter to investors below

28th April 2010

Dear Investors On behalf of the Directors of St Laurence Limited (‘SLL’, the ‘Company’) this letter is to update you on the Company’s current situation. Over recent months a number of the finance companies in moratorium have either sought or signaled their intention to revise their proposals or have been placed in receivership. These events have caused considerable media commentary about moratoriums and called into question their merits. The impact of the Global Financial Crisis and the resultant property market downturn has been far worse than predicted. No finance company, whether still trading with the assistance of the Crown Guarantee Scheme or in receivership or in moratorium, has been immune from its effect. Whilst our proposal has not gone according to plan in terms of loan collections, from what we have observed and as PricewaterhouseCoopers noted in our November 2008 Recapitalisation Plan, a receiver would be no better or worse at collecting the loans, and a receiver would be just as much at the mercy of falling property prices. As John Fisk, a receiver from PricewaterhouseCoopers, recently observed to the Commerce Select Committee on finance companies, moratoriums worked well when there was a viable core to the Company or “something to be saved”. St Laurence’s ‘residual core’ is a robust, income producing funds management business and protecting its value is key to producing the best possible outcome for our investors. The Current Situation Whilst we have met all of our scheduled principal repayments to date it is unlikely that we will be able to continue to do so. The continuing property market downturn has eroded SLL’s capital to the point that the Company will soon become insolvent. This will result in SLL not being able to meet some of its future obligations and you, the investors, becoming the de facto owners of SLL. As we signaled in the Recapitalisation Plan document “If the property market turns out to be significantly worse than SLL anticipates, the outcomes for investors under both the Recapitalisation Plan and receivership will be worse than SLL has estimated. If that happens, the Recapitalisation Plan will need to be reconsidered.” The Directors believe now is an appropriate time for investors to be given the opportunity to reconsider what should happen to their investment. We have therefore advised the Trustee that SLL will be calling a meeting of investors to vote on two alternative courses of action. The two alternatives to be presented will be: 1) Receivership; 2) A revised plan that recognises investors’ de facto ownership of SLL and will in effect result in you having an ownership interest in SLL’s key assets. The objective of SLL remains the same as currently under the Recapitalisation Plan – maximising value so that we can return as much of your capital as possible prior to December 2013. If you have been an investor with the Company since mid-2006 you may recall that at that time SLL changed its business from being a pure finance company. It diversified its business activities to incorporate asset and funds management by acquiring long term management contracts. These contracts, particularly those for Irongate Property Limited (Irongate) and NZX listed The National Property Trust, remain SLL’s main point of difference and largest assets. The key to maximising your returns is for us to preserve and add value to SLL’s funds management business and then realise the business in a manner that maximises value. The Directors of SLL do not believe that a receivership will achieve this outcome. The Directors have obtained independent advice from McGrath Nicol on the indicative value that could be realised for investors under a receivership. McGrath Nicol’s analysis indicates that the funds management business would be realised at a large discount to book value and that the limited guarantee provided to Secured Debenture Stock holders by myself and the Corporate Guarantors has minimal realisation value. On the basis of this advice, and on our own internal analysis, the Directors believe a receivership now would result in Class A and Class B Secured Debenture holders receiving a further 26 to 38 cents in cash over a 2 to 3 year period and Capital Note holders receiving nothing. Conclusion The unfortunate reality of the situation is that the moribund property market has resulted in you effectively becoming the economic owners of SLL. We appreciate this is not what you signed up to nor the outcome we had hoped for when we put forward the Recapitalisation Plan. However, we are strongly of the view that if a receiver had been appointed in 2008 the outcome would have been essentially the same and possibly much worse. We understand that you want your money back and in the current market we sincerely believe that a receivership is not the best way to achieve this. Rather we believe that an orderly sell down of SLL’s key assets will preserve the value of its funds management business and hence provide a better outcome for you. We appreciate that you will be asked to make an important decision about your investment. Accordingly, we have commissioned Grant Samuel to provide investors with a full independent report on the alternatives and the value implications for investors. We expect to be in a position to provide you with full details regarding the alternatives we believe you have as an SLL investor in June with a view to holding an investor meeting to vote on those alternatives later that month. We also plan to hold investor meetings in a number of locations around the country in advance of the investor vote in late June and will provide the details to you shortly. Finally we would like to assure you that our commitment remains, as always, to putting our investors first and our key objective is to maximise the amount of your investment we can return to you. Yours sincerely Kevin Podmore Managing Director On behalf of the Board P.S. As part of these proposed changes we are investigating out-sourcing the SLL registry which is currently run from our Wellington offices. To facilitate this potential move we have set a cut off date of 17 May 2010 for any transfers or updates of registry held information. All changes received after this date will be actioned after any investor meeting. Please note that at this stage we are unlikely to make the scheduled 1 July 2010 principal payment but we will confirm this in our next communication to you which will also contain the information required under the Securities (Moratorium) Regulations 2009, which came into effect on 31 January 2010.