PGW - PGG Wrightson

[Dr_Who]

Further downgrade by NUF is a good indication where the NZ and Aust farming sector is cureently. NUF have downgraded its profit by 15% or more.

Snoopy, PGW's debt is more than 6 times EBIDT.

[Toddy]

Talk about inter related transactions.

Equity Partners walking away with a lump of cash in an illiquid market for selling assets at over inflated prices too................... yep, PGW shareholders.

From the Herald, Sunday.


Kerr is now involved in a large number of business ventures with John Darby, including property developments and Equity Partners Asset Management. Epam appears to be 50/50 owned by Kerr and Darby who are close neighbours near Lake Hayes, Queenstown.

Pyne Gould will purchase Epam from Kerr and Darby for $18 million.

The $18 million Epam purchase price, which appears to be far too high, will help bridge the gap between what Kerr paid for his Pyne Gould shares and what they are worth now.

[Snoopy]

Talk about inter related transactions.

Equity Partners walking away with a lump of cash in an illiquid market for selling assets at over inflated prices too................... yep, PGW shareholders.

From the Herald, Sunday.

Pyne Gould will purchase Epam from Kerr and Darby for $18 million.

The $18 million Epam purchase price, which appears to be far too high, will help bridge the gap between what Kerr paid for his Pyne Gould shares and what they are worth now.

It is the 'other' Pyne Gould Corporation (PGC) that has purchased Epam Toddy, Not Pyne Gould Guinness Wrightson (PGW). Nice little stir of the pot though.
Yeah that deal stinks. But we PGW shareholders can take your PGC deal and raise you a worse one.

We wanted to merge with Silver Fern farms. Ended up paying that company $30m in cash plus giving away 10 million PGW shares. And we ended up with nothing! Nyah nyah nyah! Beat that you PGC whiners!

SNOOPY

[Snoopy]

Talk about inter related transactions.

Perhaps there truly is magic in those PGW executives? This from Craig Norgates closing comments in the PGGW Finance Annual Report for FY2008

"We are pleased to have negotiated a new funding facility with one of the banks, that allows up to 90% of larger terms loans to be taken off balance sheet with no recourse, and ensures each residual on balance sheet amount is ring-fenced. The facility has allowed us to enhance our credit and liquidity risk management, while generating higher return for the company."

Did I read that right? Up to 90% of term loans have *disappeared* off the PGW balance sheet? David Copperfield eat your heart out. How is such a thing possible? Are there any finance types out there who are clever enough to explain what Norgate has done here?

SNOOPY

[Xerof]

The most obvious answer is 'Securitisation'

Look here for a simple explanation

http://www.yieldcurve.com/Mktresearc...ationJan03.pdf

[glennj]

I've noticed that the price of PGW has fallen almost 19% over the last month whilst most of the stocks I follow have risen. I sold down after the Siver Fern farms fiasco but unwisely? retained some stock.

It appears that a rights issue is being priced in though some commentators are saying they may squeak through without having to raise more equity. It appears that they are about 63% debt funded which is too high especially in this financial climate!

Chalkie in yesterday's copy of the Independent postulated that a 1 for 1 rights issue at 50c is required despite the probable reluctance of the larger shareholders to stump up with more cash.
Any thoughts on if a rights issue is going to happen within the next 12 months and if so what terms are likely?

[Snoopy]

The most obvious answer is 'Securitisation'

Look here for a simple explanation

http://www.yieldcurve.com/Mktresearc...ationJan03.pdf

Thank's Xerof. That little pdf is the best explanation of Securitization I have yet seen.

Also, on studying the analysts presentation for FY2008, I notice that $100m of PGGW finance company debt is currently being held 'off balance sheet' with the ASB! So it looks like you are 100% right.

I still don't understand why ASB did it though. Wouldn't it be better for ASB if they simply had a secured debt with PGW Finance as per normal? What is the incentive for ASB to take on this risk as some kind of securitized bond?

SNOOPY

[Xerof]

Coz they can usually get the SPV rated by S and P or such-like, and flick the risk off as an investment grade bond to investors in that type of paper, even if the Originator is unrated.

Sound familiar? Well it should, as this is what the Wall Street Masters of the Universe had been doing with mortgages....

[Snoopy]

Coz they can usually get the SPV rated by S and P or such-like, and flick the risk off as an investment grade bond to investors in that type of paper, even if the Originator is unrated.

Sound familiar? Well it should, as this is what the Wall Street Masters of the Universe had been doing with mortgages....

OK, say the ASB bank is charging PGW 9% as a normal interest rate on their borrowings.

PGW then figuratively wraps up this debt as a 'package' and gives it back to ASB. ASB then puts a new layer of paper on this package. ASB writes 'Sucker Bonds' on the new paper wrapper and 'passes the parcel' to some hapless American investors telling them they will pay them 5% interest to hold these 'brand new' 'Superior Under Close Keeping Earnings Rich' bonds (SUCKER for short). Americans who are used to getting 1% interest at the bank are very happy!

ASB then pockets the difference in the interest rate ( 9%-5%=4% ).

Is that how you see the deal working Xerof?

SNOOPY

[Xerof]

Su'mat like that....

The ASB doesn't carry any risk, they probably only charge an arrangement fee, but the concept is that the PGW assets that are being hocked off as a SUCKER bond as you call it have a rating much better than if it was PGW debt, so they get it placed at a lower rate, off their balance sheet with no recourse. PWG benefits partially from the lower rate, but also has the debtors off their books up front

The bond purchasers are relying on the S&P rating as support, on the assumption the 'names' that are behind the debt (originally payable to PWG, but now payable to the SPV) are better credit risks than PWG.

This aspect of course is where it turned to custard in the US - relying on the rating was fatal, as the default rates on the individual debtors rose out of all expected proportion