Allied Farmers' in struggle to pay its debts to Allied Nationwide Finance receiver

Read Allied Farmers' statement below:

Allied Farmers Limited announced that it had entered into two loan agreements with Allied Nationwide Finance (In Receivership) (ANF) with respect to the Allied Farmers Group’s existing debt factoring, credit enhancement and related party loan arrangements with ANF. Under those loan agreements, the existing arrangements were converted into two separate loan facilities with ANF under which all Allied Farmers Group assets are secured by a Composite General Security Deed.

The first loan facility, initially totaling $8.9 million, was granted to Allied Farmers Rural Limited and has a current outstanding balance of $7.5 million. This is due for repayment on or before 1 July 2011. The second loan facility was granted to Allied Farmers Limited, and has a current outstanding balance of $11.7 million. This is due for repayment on or before 1 July 2012.

At the time the loan agreements were entered into, the Allied Farmers Group’s financial forecasts illustrated that the Group would realise sufficient funds from asset realisations to fully repay the first loan before 1 July 2011. The Board has now reviewed the forecasts, and these indicate it will be difficult to conclude sufficient realisations by 30 June 2011 in order to fully repay the balance of the first loan by the due date. However, some asset realisations will be concluded between now and the due date, which will further reduce the outstanding balance under the first loan.

The decline in forecast realizations in the period to 30 June 2011 is the result of challenging conditions driven by market saturation of finance company assets. This position is broadly consistent with that being experienced by other finance companies, many of whom are in receivership, and were beneficiaries of the Government’s retail deposit guarantee scheme.

If Allied Farmers Rural Limited does not fully repay the first loan facility by 1 July 2011 it would constitute a further default under the Allied Farmers Group’s funding arrangements with ANF. This would be in addition to the alleged default in relation to a disputed guarantee by Allied Farmers Limited (disclosed on 6 April 2011), and another in relation to the receivership of Matarangi Beach Estates Limited (disclosed on 18 November 2010), which also constituted a default under those funding arrangements.

ANF has advised Allied Farmers Limited that it has reserved its position in relation to these defaults, and is considering its options. Allied Farmers Limited Managing Director, Mr. Rob Alloway, said “Although the forecast realisations required to fully repay ANF have not been achieved, we have had better success in relation to the sale of properties we own at Jacks’ Point and Clearwater. We have been able to retire debt to lenders (ranking ahead of ANF) on these properties from $13.3 million at 31 December 2010 to $10.4 million today.

In addition, we have sales contracts that we expect to settle prior to 30 June 2011 that will result in further debt retirement of circa $4.7 million”.

“Furthermore, we are confident that, in such a strong rural environment, our rural business will be able to generate solid revenue and growth in some areas. This is important because the rural business assets are a component of ANF’s security package.

The fact that the rural business is improving will, I am sure, be a relevant factor as we engage with ANF on the future of our loan arrangements.”

The Allied Farmers Group is engaging with the receivers of ANF with a view to resolving any outstanding issues and future arrangements and will advise the market of any material developments in due course.