Hanover's shareholders to inject $96 million into business

Thursday 18th September 2008

Hanover's shareholders Eric Watson and Mark Hotchin are planning to inject up to $96 million of capital into the business as part of a restructuring plan.

The $96 million is made up of up to $56 million in cash and $40 million in property.

Hotchin told GoodReturns.co.nz that the initial injection will be the property and $36 million in cash. The other $20 million will be injected if required.

"It's quite a lot of cash particularly in these troubled times," he says.The property is a mix of assets which are currently held by what was Hanover Property. Hotchin says it is being put in below valuation; however it is currently valued at $51 million.

Hotchin says the final details of a restructuring package, "which we think works for everyone" will be released in the next few weeks along with the audited accounts.

The new capital is in addition to the $64 million already in the business. Hotchin says the new equity portion ranks after debenture holders' investments."They get their principal first, then we have an interest mechanism."

Most of the details have been put to the trustees for the companies involved: Hanover Finance, United Finance and Hanover Capital.

He says the trustees have negotiated hard during the deal and there has been "an appropriate amount of tension."

"The trustees and advisers have done a very good job of putting a lot of pressure on to get the best deal they could for debenture holders. We've taken the view we are still going to have the company at the end of it so it's not all bad."

A September interest payment to debenture holders isn't planned as the company is currently in a "standstill". However, if the restructuring plan is approved debenture holders are likely to get a payment in November.

When asked if he thought that the deal would silence all the critics he said: "I don't think there's any solution which would deliver that."

The package being put forward though is designed to show that the "shareholders are standing up and supporting the business in its time of need."

Also it makes sure that there is a future for the business.

When asked if the shareholders considered walking away from the company he said: "The options were pointed out that we didn't have to do this."

"We took the view that we would like to see that all the debenture holders are repaid and that we have a business to go forward with."

Hotchin says international rating agency Fitch are being kept appraised of developments, however the company may let its rating lapse as it doesn't intend to raise new finance from retail investors in the near future.

He says Hanover may return to the retail market, but that won't be until conditions have changed and confidence improves.

Likewise, it may look to wholesale funding lines in the future, however that isn't an option in the current conditions.

Hotchin says it has been an enormous process putting the deal together and a bigger job than he thought: "Our investors have been very patient through this period and somewhat frustrated as well I'm sure as all have been and we would like to let them know that we do understand and we are appreciative of their patience and support."

Good Returns is the biggest and most comprehensive news centre in New Zealand for financial advisers. For more of the week's top news stories for financial advisers visit www.goodreturns.co.nz

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