Vision Securities put into receivership owing NZ$28 mln, but covered by government guarantee (Update 2)

Retirement home finance company Vision Securities has been put into receivership by its trustee Perpetual Trust after the failure of one loan to be repaid last week. Vision Securities is covered by the government's deposit guarantee and those eligible among the 1,000 953 depositors will be repaid 100% of the NZ$30NZ$28 million they are owed, Treasury and Perpetual said. (Updated with detail from Perpetual Trust, including specific rather than rounded up numbers; Standard and Poor's rating downgrade to D) Rod Pardington and David Levin of Deloitte have been appointed as the receivers and a help line (0800 167 177) for investors has been set up. More information will also be available here at Deloitte's website. Perpetual Trust Head of Corporate Trust Matthew Lancaster said Vision Securities' Directors made the request for receivers to be appointed following the failure of a major loan to be settled last week. They were concerned about their cash reserves and their ability to keep paying debenture investors. “The Directors report that the company’s borrowers are finding it increasingly difficult to refinance or repay their maturing loans,” Lancaster said. Meanwhile, Standard and Poor's announced it had downgraded Vision to D for default from a single B. Here is the February 22 report on that B rating with a negative outlook, which appears to have been the death knell for Vision, given it needed a BB rating to ensure inclusion in the extension of the Deposit Guarantee Scheme until the end of 2011. Here is the full statement below from Treasury:

All eligible Vision Securities Limited depositors will get 100 per cent of the money they are entitled to under the Crown retail deposit guarantee scheme, Treasury Director of Financial Operations Dr Brian McCulloch said today. The trustee for Vision Securities Limited has announced the appointment of receivers to the company. That constitutes a default event under its Crown Deed of Guarantee, triggering the Crown’s guarantee. Eligible depositors with Vision Securities will be contacted within six weeks and provided with information about how to claim under the terms of the Crown retail deposit guarantee. Vision Securities is an Auckland based financial institution with around 1,000 depositors and approximately $30 million in deposits. The Crown retail deposit guarantee does not cover any new deposits or the roll-over of existing deposits after the default of the company. “The Crown stands fully behind its guarantee commitments, and we expect an orderly process of payment to eligible Vision Securities depositors,” said Dr McCulloch. “In circumstances such as this, when the guarantee is triggered, it is important to remember that it is the eligible depositors that are guaranteed rather than the company. The Crown retail deposit guarantee scheme was introduced to maintain depositor confidence by protecting eligible depositors. “Over the life of the scheme, exits, mergers and wind-downs will occur. This is normal financial sector activity and is expected to continue even though the guarantee scheme is in place,” said Dr McCulloch.

Perpetual Trust, as the trustee for Vision Securities Limited (VSL), has appointed receivers to the company at the request of its Directors. VSL is a specialist property financier for the retirement village sector and a provider of general development finance. It has been trading for nine years. VSL has 953 debenture holders with $28 million invested, and is a participant in the Retail Crown Guarantee Scheme. Perpetual Trust Head of Corporate Trust Matthew Lancaster said VSL Directors made the request for receivers to be appointed following the failure of a major loan to be settled last week. He said VSL Directors were concerned about the company’s on-going liquidity and believed that in due course the company would be unable to meet its ongoing debenture obligations. “The Directors report that the company’s borrowers are finding it increasingly difficult to refinance or repay their maturing loans,” Mr Lancaster said. “VSL has concluded that receivership is the best option to protect all investors and to ensure all investors are treated fairly. As the Trustee, we agree with that assessment and accordingly have today appointed Rod Pardington and David Levin of Deloitte to be the receivers.” The receivers will prepare and send debenture holders a report on their initial findings as soon as possible.

Standard & Poor’s Ratings Services said today that it has lowered its long-term local-currency issuer credit rating on New Zealand finance company Vision Securities Ltd. (VSL) to ‘D’ from ‘B’. This rating action follows the announcement that VSL’s trustee, Perpetual Trust, has appointed a receiver at the request of VSL’s directors. The directors’ decision stems from the failed settlement of a mortgaged property on March 26, 2010. The settlement was expected to generate proceeds of about NZ$6.75 million for VSL. The failure of this loan settlement calls into question VSL’s ability to meet its liquidity needs on an ongoing basis. Additionally, the directors’ decision to call for the appointment of a receiver also reflects their view that the loan is now unlikely to be repaid in full, with a further write-down potentially placing the company in breach of its trust deed. Despite the appointment of a receiver, the majority of the interests of about 1,000 debenture investors—with total unrated secured debenture stock of about NZ$30 million—will likely be covered by the New Zealand government’s Retail Crown Guarantee Scheme. VSL’s ‘B’ rating was heavily constrained by its weak capital position, which was assessed as being small and moderated by related party loans, and its concentrated loan portfolio. The rating also recognized VSL’s concentrated and vulnerable funding and liquidity profile. The adequacy of VSL’s liquidity in recent months was delicately balanced as a result of liquidity pressure stemming from a combination of asset quality issues and a reduction in cash holdings. These challenges, in turn, stemmed from VSL not renewing its debenture prospectus in September 2009 pending completion and sign-off by its debenture trustee on its recent recapitalization transaction. As noted in our previous statement on Feb. 22, 2010, VSL’s liquidity adequacy at the ‘B’ rating level—and a significant factor underpinning the negative outlook—relied on a sharp rebound in cash holdings in April 2010 after receipt of proceeds from loan asset sales and the company’s anticipated return to the retail debenture market in March 2010.