South Canterbury Finance: Expect the unexpected
George Kerr’s Torchlight Credit Fund has jumped out of the frying pan and into the fire – providing a new senior $75 million funding line to troubled financer South Canterbury Finance.
Fresh from taking part in Marac Finance’s restructure and Pyne Gould Corp’s $267 million capital raising, the Queenstown businessman is now lending a hand to Allan Hubbard’s company at its most painful hour of need.
South Canterbury announced today that Torchlight is providing the $75 million funding from a syndicate of professional investors from Australia and New Zealand. Forysth Barr arranged the facility.
South Canterbury has already used the funds to repay $US50 million of principal to institutions invested in notes issued pursuant to a US$100 million private placement.
As previously announced the remaining $US50 million will be repaid progressively over the next five months.
In a statement to the stock exchange Mr Kerr said: "Investments that are perceived to be too difficult for banks often create opportunities for fund managers.
“[Torchlight] has been established to focus on exactly this type of situation.”
Mr Hubbard said: “We are very pleased to have this new facility provided by investors who understand the business cycle and the opportunities for South Canterbury Finance.”
Mr Kerr, a descendent of the Pyne family, has just spent $36 million lifting his stake in Pyne Gould Corp from 10% to 13.2% following a massive six for one rights issue that raised $267 million.
PGC earlier bought Mr Kerr’s Equity Partners Asset Management (EPAM) for $18 million as part of its plan to become a banking and asset management firm.
In turn PGC subsidiary Marac is selling $160 million of property loans to Torchlight, which is owned by EPAM.
Ironically, SCF owns 4% of PGC.
While PGC and Marac is on the road to recovery South Canterbury is about to embark on its own heart surgery with an expected restructure and capital raising plan due to be announced any day.
The company is taking a series of crucial steps to restore liquidity after losing its investment grade rating and suspending new debenture investments for a period.
Last week the company issued a new prospectus after filing its audited accounts for the financial year.
South Canterbury said today that it is receiving a good response from investors to the prospectus, which offers yields of up to 8.5% per annum over a range of maturities, including a current rate of 8 per cent per annum for deposits that mature on 11 October 2010, inside the New Zealand Deposit Guarantee Scheme.
Mr Hubbard said: “I would like to again acknowledge the support of our many thousands of loyal investors and customers.”
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Comments and questions9
Well this is interesting news, but as in the past with SCF, this news creates more questions than answers:
1. When did the facility get put into place and drawn on, and did SCF pay the notes on time or late?
2. What is the interest rate on the facility?
3. Is a very strongly senior secured facility, ranking ahead of debenture holders, really 'too difficult for banks'? That bad, really?
For more comments on SCF see http://davidhillary.blogspot.com/2009/10/share-market-to-south-canterbury.html
thought you had bets on SCF going down this week Davo..
And perhaps they did, hence my question whether they failed to make the payment on the notes on time.
I've just called Geoff Sensescall who was listed as the contact for the market announcement by PGC, who confirmed that the facility was put in place and the advance made to SCF today. So ... perhaps SCF did run out of cash and default on the notes payment after all?
Yup - you should have guessed. PGC, thruough Perpetual Asset Managment, is a cornerstone investor in the Torchlight Fund, having put $15m into the the $75m facility to SCF. This guy Kerr needs to be watched. There is a big money go around starting here and begining to smell like those Money Managers type people.
If this new facility ranks ahead of debenture holders........
and debenture holders are guaranteed by Govt.........
isnt the Govt position weakened ????
OR has crafty Kerr bagged himself a junk loan, at junk rates, guaranteed by Govt.
Will SCF now lend money to crafty Kerr, and backwards and forwards, and backwards and forwards. ???????
Surely not the Kiwi MUMS and DADS friends" MONEY MANAGERS",YEAH RIGHT!!!
You are right that it ranks ahead of debenture holders (and this is allowed, subject to limits, by the trust deed), and that it subordinates the debenture holders (and government's) position.
Given the PGC facility ranks ahead of debenture holders would it not be necessary for SCF to disclose the terms of the facility so investors can assess the merits or otherwise of investing in SCF.
While I acknowledge PGC/Tourchlight has assumed the security position previously held by the US investors, it would be helpful to know when the facility matures and what the cost is to SCF.
If as some people have suggested PGC are charging interest at greater than 10% then why would anyone consider investing in SCF at 8% when you have less security.
Is this a play for SCF assets by PGC? For $75m will Kerr be in a position to apply pressure on SCF/Hubbard to divest assets at prices favorable to PGC. The government and/or investors will be left to pick up the short fall.
The government should not allow SCF to incurr additional liabilities (i.e. issue debentures) until it can demonstrate it has sufficient equity and liquidity to servive its existing maturities and liabilities.
SCF is dependent upon new investment (debentures) to service existing interest and principal payments. With a significant portion of the assets providing little return, and in many cases interest income being capitalised it is likely SCF does not have sufficient cash flow to service its debts unless the issuance of new debentures exceeds payments. It sounds a bit like a Ponzi scheme.
And what do you think will happen when the inevitable downgrade occurs? No government guarantee, no future. can SCF realise its assets quick enough to meet the shortfall? Very unlikely unless the likes of PGC come swooping in at heavily discounted prices.
All in all, it still looks like an uphill battle for SCF.
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