By Gareth Vaughan
Investors holding more than NZ$250 million worth of PGG Wrightson Finance debt securities guaranteed by the taxpayer, should be "largely indifferent" on whether the proposed transfer of their interests to Heartland New Zealand, as part of its purchase of the rural lender's good loans, goes ahead or not, according to the independent report on the proposed deal.
In the report Northington Partners points out that, as of May 31, about 50% of PGG Wrightson Finance's debentures, all of its bonds and 100% of its on-call deposits, which collectively represent just under 70% of the firm's total debt securities, were due to mature before the extended Crown retail deposit guarantee scheme expires on December 31 this year.
"With the exception of the non-guaranteed investors, the holders of these securities should therefore be largely indifferent to whether the debt transfer proceeds or not," Northington Partners writes. "The payment of their interest and principal is guaranteed by the Crown and they are free to choose how to reinvest their capital at the maturity date."
PGG Wrightson Finance debt holders will vote on the proposal on August 8.
Northington Partners says PGG Wrightson Finance had NZ$416.3 million of debt securities on issue as of May 31. Of the total, NZ$289.1 million was due to mature before December 31 and NZ$127.2 million after December 31. Of the NZ$289.1 million, 70.4% worth was covered by the Crown guarantee and 29.6% wasn't. And of the NZ$127.2 million maturing after December 31, 39.2% was covered by the guarantee in the event of a PGG Wrightson Finance insolvency before year's end.
All up, that means a total of NZ$253.5 million worth of PGG Wrightson Finance debt securities was covered by the guarantee at May 31.
Northington Partners concludes that the debt transfer proposed is fair to PGG Wrightson Finance debt security holders. It says Heartland NZ's greater scale, stronger credit rating, diversity of funding lines and loan book, and ability to access equity capital to support growth and absorb external shocks, is likely to reduce the risk to all debt holders compared with the position that would exist for PGG Wrightson Finance debt holders if the transfer doesn't go ahead.
Under the transfer, PGG Wrightson Finance's debt obligations will become Heartland NZ obligations with those covered by the Crown guarantee retaining it until December 31. Heartland NZ is also covered by the Crown guarantee.
CEO Jeff Greenslade recently told interest.co.nz that Heartland NZ's plans to wean itself off the Crown guarantee were tracking ahead of its plans. However, he wouldn't, and Heartland NZ hasn't recently, disclosed what percentage or value of Heartland NZ's deposits have maturity dates beyond December 31, or of what percentage or value of money being reinvested, or invested, with Heartland NZ is being invested out beyond December 31. See full story here.
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