Struggling Allied Farmers says more money coming as capital notes concerns emerge

Trustees Executors, the trustee for Allied Farmers' capital noteholders, has written to the Companies Office raising concerns about the struggling firm's financial plight.

(Update adds comments from Trustees Executors, number of capital noteholders & information on, and link to, the Corporations, Investigations and Management Act).

However, Allied Farmers says Trustees Executors wasn't fully up to date with developments when it wrote the letter, including that Allied is expecting to receive another NZ$3.5 million this week through a US court judgment on a luxury development in Beverley Hills that was financed in part by Hanover Finance whose finance interests it acquired last December. The judgment follows a long running legal dispute with Pacific Northstar Property Group, headed by property developer Mark Cooper.

As of December 31 Allied Farmers had capital notes with a face value of NZ$12.6 million on issue. The register has a list of 521 investors including couples and trusts, according to Trustees Executors.

Allied Farmers said it expects to report that it remains in compliance with its capital note covenants when it releases its delayed annual results later this week. Under its Capital Notes Deed Allied Farmers is required to ensure that its external secured debt doesn't exceed 1.5 times equity.

A spokesman for Trustees Executors said the trustee had notified Allied Farmers of its actions as required under section 12 of of the Corporations, Investigations and Management Act and the Companies Office under section 11 of the same Act. He said Trustees Executors had no further comment to make.

Section 11 of the Act outlines that a trustee has to disclose to the Registrar information, if in its opinion;

(a) The corporation is insolvent or is likely to become insolvent or is in serious financial difficulties; or

(b) The corporation has breached, or is likely to breach, in a significant respect,—

(i) The terms of the trust deed or deed of participation; or

(ii) The terms of the offer of the securities; or

(c) The disclosure of the information is likely to assist, or be relevant to, the exercise of powers under this Act.

The capital notes have a maturity date of November, 15 2011 and bear interest at a rate of 9.60% per annum. According to the company's last interim report, upon maturity Allied Farmers may elect to renew the capital notes for a further period of five years, redeem or purchase for cash all or a portion of the capital notes, or convert the capital notes to ordinary shares in Allied Farmers.

Read Allied Farmers' statement below:

Allied Farmers Limited received advice on Saturday morning that it had been awarded a further interim distribution of approximately NZ$3.5 million relating to a luxury development in Beverley Hills, California, known as the Maison Reeves Condominiums.

This development was financed in part by Hanover and has been in receivership for a considerable period of time. This is the second distribution from this receivership, having previously received more than NZ$6 million in June 2010.

The judgment, entered by a California court, granted the receiver permission to make a further interim distribution to Allied Farmers, of which the net return to Allied Farmers is likely to be approximately $3.5 million. There were no objectors to the interim award. Allied Farmers expects to receive this second distribution this week.

In addition, depending on the actual sales prices of the final two unsold condominiums (one of which is currently in a sale process), the Californian receiver is likely to be able to apply to the court within the next few months for a motion to make an approximately NZ$7 million final distribution to Allied Farmers.

Allied Farmers also advises that as part of its ongoing obligations, it has kept all stakeholders, including Trustees Executors Limited (which acts as trustee for the company’s Capital Notes), informed about these matters and the general position regarding the Group, including the ongoing position under the Westpac banking facilities.

Allied Farmers has delayed the preliminary announcement of its financial results to 30 June 2010 given the need for Allied Farmers to consider those matters and the financial reporting impact of the receivership of Allied Nationwide Finance.

While Allied Farmers expects to report that it remains in compliance with its covenants in respect of the Capital Notes, Trustees Executors has an ongoing obligation to consider and report on the financial position of Allied Farmers generally, and has made Allied Farmers aware that it has written to the Companies Office in relation to the financial state of Allied Farmers.

Given the work being undertaken on its accounts and also given that a number of proposed actions are incomplete and subject to commercial sensitivities, and therefore are not capable of general disclosure, the position is that not all stakeholders can be fully up to date with developments at all times, and Trustees Executors’ action therefore necessarily occurred without it being aware of the latest information or developments.

Allied Farmers will seek to brief relevant stakeholders, including Trustees Executors and the Companies Office on the state of various initiatives, including the impending receipt of the Maison Reeves funds and other positive news expected shortly. Allied Farmers is confident that these initiatives, and an appropriate briefing will assist in clarifying the state of Allied Farmers’ financial position.

Managing Director Mr Alloway said “We are making solid progress in addressing our financial position and we will give a further update, including some likely further positive developments when we release our preliminary accounts later this week.”