St Laurence receiver says returns to 9,000 investors dependent on beleaguered Irongate Property

By Gareth Vaughan

St Laurence's receiver says the prospect of the failed property financier's 9,000 investors' getting back the promised up to one third of the NZ$245 million they're owed depends on the fate of Irongate Property, in which St Laurence holds both a 34% stake and the management contract.

Deloitte's Barry Jordan, appointed receiver to an insolvent St Laurence in April by trustee Perpetual Trust alongside his colleague David Vance, told interest.co.nz that he was "acutely" aware of key end of January and May deadlines looming for Irongate, formerly St Laurence Property & Finance.

Trustee Perpetual wants Irongate to have rectified at least one of two Trust Deed ratio breaches by the end of January. And May 15 is when Irongate faces repaying NZ$50 million worth of retail bonds, currently paying interest of 9.25% per annum to about 1,500 investors, upon maturity.

"If the (Irongate) bond holders don't get out then there's no money for the shareholders," Jordan said.

Irongate shares trade on the Unlisted exchange. The last trade was at just 4 cents per share, well down on the company's March 31 net asset backing  of 41c. Irongate posted a NZ$13.9 million loss after tax for the six months to September. At September 30 its borrowings totaled NZ$133.1 million, down NZ$23.1 million from March 31, sitting at 67.9% of total assets.

NZ$50 million bond repayment looms large

In July Irongate repaid NZ$30 million of bonds on maturity after securing a NZ$45 million loan through Bluestone Group. Irongate also owes money to Westpac and BNZ, which combined with the Bluestone loan, stood at NZ$87.2 million at September 30.

Asked if Bluestone is, or will, consider organising more funding for Irongate to help the company remedy its Trust Deed ratio breaches and/or to enable it to pay out the NZ$50 million worth of bonds due in May,  Bluestone CEO Peter McGuinness said his firm hadn't been asked to, but was continuing to work with Irongate to arrange funding to support the business.

"We have not been requested by the current management to support funding to either cure the current breaches or to assist funding redemption of the NZ$50 million bonds," McGuinness said.

He said Bluestone had arranged additional incremental funding worth about NZ$8 million for Irongate since July to support specific property improvements and to refinance other debt.

In their first receiver's report on St Laurence in June Jordan and Vance estimated St Laurence secured debenture holders were likely to get back a maximum of 32 cents in the dollar. That includes the 10c they got under St Laurence's moratorium plan and between 15c and 22c by about the end of 2011.

Irongate uncertainty

Jordan says now, however, Irongate is the big "uncertain factor" in this. He said there were three group's of St Laurence assets, - a management contract and near 16% stake in the National Property Trust, St Laurence's loan book and the Irongate interests.

"National Property Trust is finalised now (and) loan realisations are going well," Jordan said. "Irongate is the big uncertain factor, if you like."

Jordan and Vance agreed in June for National Property Trust's management contract to be internalised in exchange for NZ$2.5 million and to sell the almost 16% stake in the listed property trust for about NZ$16.3 million.

On St Laurence's loan book, which had 14 loans in it when the receiver's took the reins with a gross value of about NZ$70 million and all but one in default, Jordan said some "good outcomes" had been achieved.

"For a fairly stressed loan book we're fairly pleased with what we have achieved so far. We've realised and sold some, not as a package but one by one," Jordan added.

"The largest asset is some loans in Australia (that) we are progressively selling down."

Asked if he was still comfortable with the range of returns estimated in the first receiver's report Jordan said: "Yes we are but the Irongate one is a relatively big mover in that transaction. We're within the range but probably, unless things go well with Irongate, we might be (at) the middle to lower part of the range."

Receivership a possibility for Irongate

On Irongate's two Trust Deed ratio breaches, Perpetual has reserved its position until the end of January next year.

Matthew Lancaster, Perpetual's head of corporate trust, said the breaches were to the single borrower concentration limit clause, which covers the amount Irongate can lend to any one borrower or group of borrowers, and what's essentially the debt to equity ratio.

He said the first breach was unlikely to be fixed by the end of January given it involved a large development in Australia "which will take quite a while to sell down." Lancaster declined to name the development but Irongate's annual report notes it is selling sections at the Bolwarra development located in the Hunter River valley north of Sydney.

By not granting the waivers Lancaster said Perpetual had essentially declined to take any enforcement action at this stage and would review the situation again at the end of January.

"We can still take enforcement action under these breaches because we haven’t actually waived them," he said.

The only real enforcement action option was receivership, Lancaster added. That said, Perpetual was unlikely to take enforcement action if there was a "good" chance the bonds were going to be able to be repaid in May.

"On the basis of the strategies they’ve told us they’re implementing, to achieve asset sales and so on, they expect to be in a position to be compliant with that (debt to equity) ratio by the end of January," said Lancaster. "The strategies they have presented to us appear achievable."

Property market 'challenging' says Podmore

Irongate chairman Kevin Podmore said the firm had a number of conditional and unconditional sales in place. These include the conditional NZ$12.55 million sale of a Whangarei building to a property syndication being put together by Maat Consulting. The money needed to overcome the Trust Deed ratio breach amounted to "just a few million" said Podmore.

Podmore said all going well Irongate was hopeful of remedying the debt to equity ratio breach by the end of January and was primarily endeavouring to show Perpetual that it was making progress. Property market conditions remained challenging.

"There’s not a lot of sales transactions occurring. Money’s still tight. (Conditions are) not conducive to an active property market," said Podmore, who was also St Laurence's managing director.

Asked if he was confident of being able to repay the May bonds on maturity, Podmore said: "We've got initiatives in place that if they come off, then we’ll get home. But in the current climate we are reliant on achieving a few things, and if we don’t we can’t."

 McGuinness said Bluestone was in talks about acquiring Irongate's two management contracts - one is a property services agreement and the other an investment management agreement - and expects resolution by December 31. Meanwhile he said an option Bluestone has to buy a 15% stake in Irongate runs for five years. Jordan said the receivers had talked to other parties as well as Bluestone interested in taking over Irongate's management and he hoped to get a deal done by the end of January.

Meanwhile, McGuinness told interest.co.nz in July Bluestone was also “actively working on” a number of opportunities in the New Zealand finance company sector and would be able to arrange more than NZ$500 million of capital should the right opportunities arise.