The Hanover Finance group has unveiled its long-awaited restructure plan, under which it plans to repay secured investors all their principal in the next five years and continue as a property lending business.

Hanover Finance shareholders Mark Hotchin and Eric Watson are also putting $96 million into the company: $10 million cash straight away with another $20 million to call on in future years; and $66 million of property equity.

The complicated plan addresses four types of investors.

Hanover Finance and United Finance debenture-holders, owed $462.5 million and $64.7 million respectively, are expected to get all of their principal back, with payments quarterly until the end of 2013.

Most of the money – 70% – won't come until 2012 and 2013.

Hanover Finance subordinated note holders (owed $2.1 million) and Hanover Capital bondholders (owed $24.2 million) will get a one-off payment of 50% of their investment at the end of 2013, assuming all the other payments to Hanover Finance and United Finance debenture holders have been met.

There is a mechanism by which secured investors can receive interest payments too, but this will only happen once the shareholders’ support has been repaid.

Hanover chairman Greg Muir, who announced today that he is stepping down from his board post next year to take on a full time executive position, says there was a chance Hanover could have made it through until the government’s deposit guarantee was introduced, and then been eligible for it.

But, he says, the company decided to enter a moratorium early to preserve cash and make sure it had the means to design an appropriate restructure plan.

All of the Hanover senior figures in attendance at the media conference emphasised the plan’s advantages over a receivership, with Mr Muir saying that appointing a receiver would double Hanover’s operating costs, and Mr Hotchin saying it would be a “disaster”.

Independent advisers PricewaterhouseCoopers and KordaMentha agreed that the debt restructure plan was more advantageous at this time than receivership, principally because the shareholder support would not be available if the plan is not approved by investors.

The $10 million in upfront cash is to be held in an escrow account and used for principal repayments if required.

Messrs Hotchin and Watson have also chipped in $26 million to enable Hanover to purchase a loan from another company that they control, to the Matarangi Beach Estates development.

Hanover Finance chief executive Peter Fredricson, who has taken the reins after previous CEO Bruce Gordon left for a post at PGG Wrightson, says this will increase Hanover’s equity in the project.

Matarangi is part of the $40 million in property assets owned by Axis Property Group, which are also being transferred from Hanover’s shareholders to Hanover.

Those assets also include land holdings at the Clearwater Resort in Christchurch, apartments at the Sebel hotel in Auckland and sections at the Jacks Point and Henley Downs developments in Queenstown.

Mr Muir says in the context of other finance company restructure plans involving additional contributions from shareholders, Messrs Hotchin and Watson’s was the “most generous and most tangible.”

Hanover is looking to make new loans, although a strict list of conditions have been imposed to make sure these are low risk.

Mr Hotchin says the success of this new lending could affect Hanover’s planned return to investors by 10%.

Beyond the expected repayment of investors in 2013, Hanover expects to trade on as a mezzanine financier, although not with debenture funding.