South Canterbury Finance Limited

[Enumerate]

they just looked like a great return compared to other risk / return options (like 3% in the bank!)


Do not be dazzled by the deep discount you are buying these things to face.

You would have to agree that the most likely outcome for SCF is to emerge in a significantly deleveraged state from its reorganisation. The accumulated losses in property, losses that can be expected on the related party loans, losses from the reorganisation process and significantly scaled back business opportunities - will leave SCF smaller and weaker.

The SCFHA pref holders will be, along with the equity holders, the ones who "pay the piper".

If you factor in less optimistic scenarios - like a nervous government with a vast exposure through the retail investment guarantee scheme - the prospects for equity and pref holders are much worse.

Let me see ... 3% in a bank vs 50% in SCFHA ... I know how to evaluate the risk side of the equations, my deep fear is the the SCF reward parameters may be completely illusional.

[GTM 3442]

Hi GTM,

I picked up mine at a 24% return (or something like that) around Sep 2009 - more luck than judgement in getting the very top of the yield curve to be honest - they just looked like a great return compared to other risk / return options (like 3% in the bank!)


Alan.

If you're into perpetuals, you could look at Infratil at about 66c , which is effectively 7.5% (double 3% in the bank), with an annual reset to look after any coming inflation.

Nowhere near as good as 24%, sure. But less prone to rollercoastering around. . . .

Perpetuals got a really bad press last year, when the resets kicked in and people found that the rate could go down. Some of them were quite surprised by this, I gather.

[Enumerate]

Perpetuals got a really bad press last year, when the resets kicked in and people found that the rate could go down. Some of them were quite surprised by this, I gather.

Perpetuals have the worst aspects of equity - deeply subordinated debt, perpetual term, zero yield (in the bad times) ...

And the worst aspects of bonds - low yield (compared with equity in the good times), no voting rights, weak ability to trigger insolvency.

[Balance]

Balance - they have $79m in the bank .... ha ha

Indeed!

Just like they told the market in Aug 2008 - "we maintain $400m of cash and undrawn facilities."

Ticking away.

[Alan3285]

Hi GTM,




If you're into perpetuals, you could look at Infratil at about 66c , which is effectively 7.5% (double 3% in the bank), with an annual reset to look after any coming inflation.

Nowhere near as good as 24%, sure. But less prone to rollercoastering around. . . .

Perpetuals got a really bad press last year, when the resets kicked in and people found that the rate could go down. Some of them were quite surprised by this, I gather.





For that part of my portfolio that is interested in SCF, I wouldn't be looking at a 7.5% yield to be honest.

If I am chasing 20% plus for a small tranche, I'll stick with the ones I think have the best yield / risk trade-off and right now, I'd say SCF010 is a great one to go for.


Not worried about the resets to be honest. The SCFHA rate is set from the 1 yr swap rate plus a margin of 2.3%.

As at 1 Oct 2009, the 1 yr swap was 3.31%.

Clearly it *could* go up or down, but I don't expect it to be lower come next year or in the foreseeable future (you never know though).


Bear in mind too, that the 24% yield is based on when I put the cash in and could go up (on cost) if the rate reset is higher as seems likely at this point.


I might have a closer look at BLU020 though....


Alan.

[Balance]

PGW & FPA have obtained extensions for their government guarantee.

SCF still waiting.

http://www.stuff.co.nz/business/industries/banking-finance/3342520/SCF-warns-on-extension-risk

Excerpt :

"Treasury did not say who had applied for the extension and would not announce who was turned down.

Treasury and Reserve Bank staff had started gathering data from SCF for the extension application. SCF did not know when it would get an answer from Treasury on its application, Maier said."

Tick .... tick.

No wonder the yields are blowing out again in the wrong direction.

[Balance]

Tick .... tick .....

More onerous conditions to qualify for the government's extended guarantee.

Government guarantee holds key to South Canterbury Finance's future: Maier:
20th February 2010

South Canterbury Finance's future depends on its acceptance into the government's deposit guarantee scheme as it approaches $1.1 billion of debt roll-overs between now and when the scheme shifts to new, more onerous conditions in October.
Maier, the head of embattled lender South Canterbury Finance says the government scheme has created the “unintended consequence” of making itself a necessity in giving investors piece of mind to roll-over their deposits as they come due – something that’s become a headache for the Timaru-based finance company.
South Canterbury Finance, which is owned by octogenarian millionaire Allan Hubbard, flagged a billion-dollar black hole in its latest investment statement, with some $491.2 million of debt to be repaid by the end of June, and a further $650.5 million coming due before the expiry of the existing guarantee in October. As at February 10, the company had cash on deposit of $79 million and realisable assets of $12 million, with a loan book of about $1.7 billion as at June 30.
“We’re in a temporary hump, but there’s a sense that if we can get into the scheme, we can open up a wider range of investments and move people to roll-over” their deposits, Maier said. “We’ve certainly handled individual roll-over days as big as these ones.”
Last month, South Canterbury Finance said it would apply for the extension to the Crown guarantee, which takes the scheme out to the end of 2011 with harsher requirements and more punitive charges, after it flagged more impaired assets in its first-half earnings that would lead to a loss for the period.
The Treasury requires companies that are already covered by the scheme, such as South Canterbury Finance, not to have had their guarantee removed, not to have been subject to a default event, and to hold a credit rating of at least BB. The finance company’s BB+ rating would see it pay a premium of 1.2% for coverage.
The finance company won’t be able to fall back on a banking facility after it was cancelled last year, and it has fully drawn down a $75 million facility with George Kerr’s New Zealand Credit Fund, which was used to repay American investors. Maier said there were no immediate plans to re-engage with the banks, though they’re reviewing all kinds of options to recapitalise the company.
Still, it did manage to attract new deposits after it released a prospectus in October, boosting its deposits to $34.9 million at December 31, from $29.2 million in June, and Maier’s confident they will be able to meet their obligations with renewal rates of between 50% and 60% from existing investors.
The Treasury kept its provisions for the retail deposit guarantee scheme at $899 million in the five months through November. About $873 million has been provided for future costs to the government. Some 73 institutions are covered by the scheme, with deposits totalling $133.1 billion, of which about $5.5 billion is in the non-bank sector.

[Balance]

Good lines of SCFHA and SCF010 on offer.

Whatever happened to all the bravado talk of buying plenty?

Tick .... tick .....

[Alan3285]

Hi Balance,



Good lines of SCFHA and SCF010 on offer.

Whatever happened to all the bravado talk of buying plenty?

Tick .... tick .....




Still waiting for the price (SCFHA) to get below 30c again.....

I'm not getting in again until the top sell on the board has a 2 in front of it.

Please do keep talking it down though ;-)

Alan.

[Balance]

Hi Colin,



Apologies - I did actually read that post, but I did not really recognise the extent of the opportunity.




My thinking exactly.

Yes - I agree that the prefs might see a higher yield on the next reset (1 Oct 2010 I believe), but you are still 'giving away' nearly 10% (roughly 20% minus 10%) of return in the meantime, so that cannot really explain it (at least in my opinion).

I am buying into the SCF010 bonds as they appear to be a bargain at current prices and I believe the chances of SCF defaulting on those is sufficiently low that the yield of 19.5% more than compensates for any risk and then some.


Alan.

The SCF010 are offered at 23.1% - even better buying now.

Get into them - QUICK!

[Balance]

A positive development - SCF repays its USPP bonds early.

[Alan3285]

Hi Balance,




A positive development - SCF repays its USPP bonds early.



Whilst not negative, I don't really see it as particularly positive for them.

Just means they have the liquidity to pay it now rather than in a month (or whatever it was), but so what?

The issue isn't liquidity in the next 30 days, it is the next eight months.

Alan.

[GTM 3442]

Still waiting for the price (SCFHA) to get below 30c again.....
I'm not getting in again until the top sell on the board has a 2 in front of it.


Alan, I rather think that if the price gets back down to those levels again, it'll be a sign that you won't want to get back in !

[Alan3285]

Hi GTM,




Alan, I rather think that if the price gets back down to those levels again, it'll be a sign that you won't want to get back in !



A very valid point!

Perhaps I should have said that I won't even look at it again until there is a '2' in from of the lowest sell price.

Then I will reconsider buying back in, but as you rightly point out, it would be foolish to say that I'd DEFINITELY buy at that price, since it depends on what has happened and what is known at that point.

Thanks,

Alan.

[Balance]

Tick .... tick ....

SCFHA last traded at 30c and SCF010 at 25%.

[Balance]

More related party transactions?


HALFYR: SCF010: SCF half year loss, group restructuring & recapitalisation

1 March 2010

South Canterbury Finance: half year loss, group restructuring and
recapitalisation

Southbury Corporation Limited, the parent company of South Canterbury Finance
Limited, has fulfilled a longstanding commitment to support the Company by
making a substantial injection of new equity into South Canterbury Finance
totaling $152.5 million.

The capital injection was completed on 28 February 2010 and was pursuant to a
group restructuring in which Southbury Corporation Limited, which is
indirectly controlled by Mr & Mrs AJ & MJ Hubbard, sold its 100 per cent
shareholding in Helicopters (NZ) Limited and 64 per cent of the shares of
Scales Corporation Limited to South Canterbury Finance.

The total purchase price of $162.5 million has been satisfied by the issue of
approximately 317.7 million new ordinary shares by South Canterbury Finance
to Southbury Corporation for an aggregate issue price of $152.5 million, all
of which shares have been credited as fully paid, and by the payment of $10
million in cash. The transactions were reviewed by Independent Experts
approved by the Crown, under the Company's Crown guarantee, who certified to
the Crown that the acquisitions were at fair value and on an "arms length"
basis.

South Canterbury Finance now holds approximately 79.7 per cent of the equity
of Scales Corporation and 100 per cent of Helicopters (NZ).

Mr Hubbard says Helicopters (NZ) and Scales Corporation are both excellent
businesses with which he has had a long and personal association, as a
founder of Helicopters (NZ) and as a driving force in Scales.

"Scales is an innovative company closely linked to New Zealand's backbone
industries. Helicopters (NZ) started life eradicating gorse on South Island
hills and evolved to be an internationally recognised helicopter operator
working in many countries supporting global resource companies, government
funded research and tourism."

Helicopters (NZ) and Scales Corporation are substantial and highly profitable
companies. In the year ended 30 June 2009, Helicopters (NZ) reported earnings
before interest, tax and depreciation (EBITDA) of $30.2 million and net
profit after tax (NPAT) of $16.2 million. Scales Corporation reported EBITDA
of $35.4 million and NPAT of $13.6 million. The combined FY09 results for
Helicopters (NZ) and Scales Corporation were EBITDA of $65.6 million and NPAT
of $29.8 million.

The results for the current financial year will reflect more challenging
market conditions and the usual uncertainties regarding currency and export
realisations. Both companies have sound growth prospects over the longer
term.

"The earnings contributions of these two successful companies are now part of
South Canterbury Finance, which materially and substantially changes the
earnings profile and prospects for the Company. The acquisition of
Helicopters (NZ) and Scales Corporation will provide a superior outcome for
all stakeholders."

Mr Hubbard says his absolute confidence in the future of South Canterbury
Finance and the role it plays in providing funding for the growth of
businesses, particularly in provincial New Zealand, has led to the further
investment in the Company by Southbury Corporation.

The transactions will initially restore then improve the capital position of
South Canterbury Finance which has been adversely impacted by an increase in
provisions for the six months to 31 December 2009 arising from extended
weakness in economic conditions and depressed asset prices.

After a rigorous review of all asset valuations by the new management team
and board, assisted by new auditors Ernst & Young, the provision for losses
on impaired or non-performing assets has been increased by $180.3 million.
As a result, the Company has reported a preliminary unaudited net loss after
tax of $154.9 million for the half year. South Canterbury Finance will
release its audited results when the audit has been finalised.

Including the Scales Corporation and Helicopters (NZ) transactions, the net
equity of South Canterbury Finance on a pro-forma financial position at 31
December 2009 was $252.8 million. On the same basis, the Company's equity
ratio was approximately 11.8 per cent of total assets of $2.15 billion.

As a consequence of the acquisitions of Helicopters (NZ) and Scales and the
capital issued for these, South Canterbury Finance would have been in breach
of two of the financial covenants contained in its trust deed. These
covenants relate to the level of single party exposure (the investment in
shares in Helicopters (NZ) is greater than 35% of shareholders' funds) and
the level of total equity investments to total shareholders' funds (which is
greater than 100%). Trustees Executors Limited has granted a waiver from
compliance with these two covenants until they are next tested following
completion of the Company's 30 June 2010 financial statements.

Commenting on the performance of the Company in the six months, South
Canterbury Finance Chief Executive Officer Sandy Maier says sectors other
than property are largely performing satisfactorily.

"The rural sector is benefiting from the upturn in the price of milk solids
which has in turn had a flow-on effect to businesses in provincial areas
where the bulk of South Canterbury Finance's lending customers and assets are
located," Mr Maier says.

"The half year result incorporates a total of $229 million of losses on asset
realisations and additional allowances for impairment. The underlying
trading results show a breakeven result for the six months which is
creditable given the significant disruption and costs experienced during this
period."

As previously indicated, the Company continues to enjoy the support of its
investors with the steady net inflow of funds in excess of redemptions
evident in January 2010 extending through February. The re-investment of
funds has also continued at satisfactory levels as qualifying investors
continued to seek the benefit of the Company's attractive rates and Crown
retail deposit guarantee scheme.

The Company is working with The Treasury on its application for acceptance
into the extended retail deposit guarantee scheme effective from 12 October
2010 through to 31 December 2011.

Mr Maier says progress is being made daily to consolidate South Canterbury
Finance's position. Further restructuring and asset sales will be undertaken
to continue to strengthen the Company's position and revert back to its
longer-term history of sound financial performance.

"The enthusiasm of the staff and management with the active support of the
directors and advisors for the tasks undertaken has been unstinting and gives
great encouragement for the future of the business."

"In recent times, the Company has engaged with a wide number of parties
interested in concluding capital and funding solutions for South Canterbury
Finance. Forsyth Barr is continuing to work with South Canterbury Finance to
advance proposals to further strengthen the capital base of the Company.
Further announcements will be made when arrangements are confirmed," Mr Maier
says.

Contact:
Sandy Maier
Chief Executive Officer
South Canterbury Finance
021 163 3806

Editor's note:

Helicopters (NZ) Limited is one of New Zealand's leading and most experienced
dedicated helicopter service operators. The business was founded in Timaru in
1955 and is internationally recognised for its high performance levels across
a diverse range of helicopter capabilities. The majority of revenue from
helicopter service operations is derived from term contracts with a broad
range of customers including oil, gas, and mining companies, public sector,
corporate, tourism, and long established companies. The company is
headquartered in Nelson and has principal maintenance and overhaul workshops
in Nelson, New Plymouth, Perth, and Vientiane (Laos PDR). The company has an
annual turnover of approximately $90 million. Further information is
available at www.helicoptersnz.co.nz.

Scales Corporation Limited is a public unlisted company and one of New
Zealand's oldest and most respected companies having been formed in 1912 as a
shipping service for the wool industry. Today Scales consists of a wide
range of businesses including Mr Apple New Zealand Limited, the largest
grower, packer and exporter of apples in New Zealand, as well as extensive
coldstore operations through Polarcold Stores Limited and Whakatu Coldstores
Limited which service many of New Zealand's primary producers. In addition
Scales owns and operates one of New Zealand's most experienced shipping
agents with a long history in the shipping and cargo industry sectors and one
of the largest pet food processing operators in the country. The company
also has a bulk liquid storage and processing business, a captive insurance
company to service the group's needs, and also manages a substantial property
portfolio throughout the country.

[minimoke]

More related party transactions?


Um - so Southbury loose the profitable helicopters and scales and gain shares in the loss making SCF and Mr and Mrs Hubbard get $10m in cash

[winner69]

Um - so Southbury loose the profitable helicopters and scales and gain shares in the loss making SCF and Mr and Mrs Hubbard get $10m in cash

All one happy family eh

And the trustee happy to turn a blind eye to some financial convenents put in place to stop large exposures to one investment

Hey what the heck Sandy has raised $152 of capital at the wave of the wand ... and Mr and Mrs Hubbard in a round about sort of way still own most of the helicopters

And what was the loss again .... or did I read that it was really breakeven

[Alan3285]

Surely this must mean the listed bonds and prefs fall significantly??

Drop baby, drop - any luck they'll overshoot and we can pick up another bargain!

Alan.

[Morpheus]

At least the Torchlight money is safe

[Alan3285]

Actually, perhaps it isn't quite as negative as it at first appears.

Nothing unexpected in the results really - everyone was expecting big losses / write-offs.

However, what is unexpected is the willingness of Alan Hubbard to put in an additional $150m of equity (reviewed for fair price by the crown guys so I am happy to believe the figure is 'real').

If things were truly about to go belly up, then that would represent nothing more than a straight transfer of $150m of wealth from Hubbard to whichever group was last in line to get a payout (bond holders perhaps?)

Given that he is no fool, it seems to me that things are probably okay going forwards.


What is missing from this?

Alan.

[CJ]

If things were truly about to go belly up, then that would represent nothing more than a straight transfer of $150m of wealth from Hubbard to whichever group was last in line to get a payout (bond holders perhaps?)Given his age, it is possible he is willing to take a bigger risk to ensure his legacy remains rather than making sure he has plenty of cash for retirement. (ie. is his motiveation maximising his wealth / ensuring his legacy / or ensuring investors aren't let down)

He hardly needs the cash. The beetle will go strong until he dies.

[Alan3285]

Hi CJ,




Given his age, it is possible he is willing to take a bigger risk to ensure his legacy remains rather than making sure he has plenty of cash for retirement. (ie. is his motiveation maximising his wealth / ensuring his legacy / or ensuring investors aren't let down)

He hardly needs the cash. The beetle will go strong until he dies.




An excellent point.

Either way, he has still just covered all the losses in the last period though, so there is no way his take-up of additional ordinary shares can be negative for anyone from the prefs, through bonds, to debenture holders?

Thanks,

Alan.

[Balance]

Hubbard has no choice. Either he throws in additional equity or SCF goes under - it's as simple as that.

Trouble now is that he has nothing much left of substance to throw in. Unless new equity can be brought into SCF ..... tick ... tick ...

Is Hubbard a fool? The answer is fairly obvious, I would have thought.

Have a read of this :
01 MARCH 2010

South Canterbury Finance Reports Huge Losses
Today South Canterbury Finance reported a huge $154.9m after tax ($211.8m before tax) loss for the 6 months to 31 Dec 2009. This is enough to wipe out the company's ordinary share equity, and some of its preferred share equity. As I predicted, most of this is due to a big write down on the company's property development loans.

This puts the company in breach of its capital adequacy and gearing limit requirements of its trust deed. To keep the company from recievership, Southbury Corporation has transferred ownership of its shares in HelicoptersNZ and Scales Corporation. This causes the company to breach two more requirements of its trust deed, equity exposures and single party exposure limits. The trustee has granted a waiver for these breaches for four months until 30 June 2010.

I expect that the company will shortly be downgraded two or more notches by S&P, as its liquidity position and options, a major concern of the agency, has been going backwards, and it has not moderated its loss experience, instead they have blown out several times over. (I've been wrong before in making predictions about S&P, however!) This would put the government guarantee extension out of reach of the company, and makes it unable to attract new equity or debt funding.

Mr Hubbard has been throwing good money, no, make that good assets, after bad and now he has run out of significant further assets. Now it is up to investors to decide if they want to throw their good money at South Canterbury Finance. I've predicted in the past investors won't do that. This explains the reluctance and smallness of the recent smoke and mirrors 'capital injection' and makes the company's future in grave doubt. The government guarantee will now be shown for what it always was: keeping institutions of questionable solvency going when they should have been shut down or restructured at creditors and shareholder's expense.

Mr Hubbard has thown everything he has into saving this company, in a possibly futile effort. Perhaps taxpayers should be thanking him for mitigating their loss incurred by Dr Cullen. Whether it is good stewardship of his resources is another question.

[minimoke]

Given his age, it is possible he is willing to take a bigger risk to ensure his legacy remains
I wonder perhaps if he prefers his legacy (with teh big 80 on the horizon) to be a man who built a great business, was pretty canny and when the going got really bad he did all he could to save the interests of those who have supported him over the years. He has now done all he can to save SCF (unless he wants to put his shareholdings in multiple other companies on the block) and he and the missus have at least $10m to drive off into retirement. Its now up to Sandy to raise SCF from the potential ashes. Alans hands are clean and he can meet his maker with a clear conscience.

[Balance]

I wonder perhaps if he prefers his legacy (with teh big 80 on the horizon) to be a man who built a great business, was pretty canny and when the going got really bad he did all he could to save the interests of those who have supported him over the years. He has now done all he can to save SCF (unless he wants to put his shareholdings in multiple other companies on the block) and he and the missus have at least $10m to drive off into retirement. Its now up to Sandy to raise SCF from the potential ashes. Alans hands are clean and he can meet his maker with a clear conscience.

Unquestionably a man of honor and integrity. It will be heart-breaking for him.

[Alan3285]

Unquestionably a man of honor and integrity. It will be hard breaking for him.

Absolutely - How far would he go (in terms of his other assets) if required?

$10m when you are 80 is more than enough, so perhaps everything is on the cards?

Alan.

[minimoke]

Its now up to Sandy to raise SCF from the potential ashes.
I wonder how he plans to deal with an anticipated 15% drop in apple crop this year and the delayed WHO decision? Its all well and good bringing the assets into SCF - but you also introduce a new set of challenges. It looks like Scales might already have maxed out their potential growth - meaning theres now only one way for them to go.

[winner69]

I wonder how he plans to deal with an anticipated 15% drop in apple crop this year and the delayed WHO decision? Its all well and good bringing the assets into SCF - but you also introduce a new set of challenges. It looks like Scales might already have maxed out their potential growth - meaning theres now only one way for them to go.

like they said about Helicopters and Scales 'The results for the current financial year will reflect more challenging
market conditions...."

[Balance]

like they said about Helicopters and Scales 'The results for the current financial year will reflect more challenging
market conditions...."

So what is SCF after this?

It's an investment company - not unlike Equiticorp in the old days. It derives the bulk of its funding from investors - lends some out but invests in companies and lends to them as well??????????

Let's hope it does not become another Equiticorp.

[COLIN]

Hubbard has no choice. Either he throws in additional equity or SCF goes under - it's as simple as that.

Trouble now is that he has nothing much left of substance to throw in. Unless new equity can be brought into SCF ..... tick ... tick ...

Is Hubbard a fool? The answer is fairly obvious, I would have thought.

Have a read of this :
01 MARCH 2010

South Canterbury Finance Reports Huge Losses
Today South Canterbury Finance reported a huge $154.9m after tax ($211.8m before tax) loss for the 6 months to 31 Dec 2009. This is enough to wipe out the company's ordinary share equity, and some of its preferred share equity. As I predicted, most of this is due to a big write down on the company's property development loans.

This puts the company in breach of its capital adequacy and gearing limit requirements of its trust deed. To keep the company from recievership, Southbury Corporation has transferred ownership of its shares in HelicoptersNZ and Scales Corporation. This causes the company to breach two more requirements of its trust deed, equity exposures and single party exposure limits. The trustee has granted a waiver for these breaches for four months until 30 June 2010.

I expect that the company will shortly be downgraded two or more notches by S&P, as its liquidity position and options, a major concern of the agency, has been going backwards, and it has not moderated its loss experience, instead they have blown out several times over. (I've been wrong before in making predictions about S&P, however!) This would put the government guarantee extension out of reach of the company, and makes it unable to attract new equity or debt funding.

Mr Hubbard has been throwing good money, no, make that good assets, after bad and now he has run out of significant further assets. Now it is up to investors to decide if they want to throw their good money at South Canterbury Finance. I've predicted in the past investors won't do that. This explains the reluctance and smallness of the recent smoke and mirrors 'capital injection' and makes the company's future in grave doubt. The government guarantee will now be shown for what it always was: keeping institutions of questionable solvency going when they should have been shut down or restructured at creditors and shareholder's expense.

Mr Hubbard has thown everything he has into saving this company, in a possibly futile effort. Perhaps taxpayers should be thanking him for mitigating their loss incurred by Dr Cullen. Whether it is good stewardship of his resources is another question.

It would be helpful if there was an attribution for the item you are quoting.

And I suggest one needs to be careful who one calls a "fool". At least you have the good grace to acknowledge Alan Hubbard as a man of "honour and integrity", in a later posting.

It rather saddens me to see the seeming determination displayed by certain members on this forum to see Alan Hubbard's empire collapse, and to be able to dance on his grave. I suggest that the snide comments and vitriol be saved for the real ratbags in the game, like Hotchin and Watson. Let's have a bit more objectivity here, shall we.

Personally I have not lost a wink of sleep about my exposure to SCF, and eagerly added to my holding of SCF010 today, at a most attractive yield. And before someone decides to label me "naive" I would assure them that I am a veteran investor who has done quite nicely over the years, thank you - even if I have had a few spills along the way!

[minimoke]

It rather saddens me to see the seeming determination displayed by certain members on this forum to see Alan Hubbard's empire collapse, and to be able to dance on his grave. I suggest that the snide comments and vitriol be saved for the real ratbags in the game, like Hotchin and Watson. Let's have a bit more objectivity here, shall we.

I don't get a sense of this occcuring here. What I see is a company displaying a number of yellow flags and posters making comments on those flags. And I'm not sure why we should save our vitriol for Hotchin and Watson - surely what they were doing was looking after shareholder interests - which is their primary responsibility. I'd say they did a particularly good job of this given their circumsrtances.

I'm aslo not sure your sleep patterns are something to be raising. I'm pretty sure there are a few people out there loosing sleep over SCF, Hubbard, McCleod, and Maier just to name a few.

[westerly]

In all the recent reports of SCF and it's problems facing a billion dollar repayment to debenture holders in the next 6 months or so, there was not one reference to the large sums due to be repaid by borrowers.
or the early repayment of the American debt. Just as there was with PGC and Marac there seems to be a strong desire from some in the media and some posters to see these mainland firms collapse.

Westerly

[minimoke]

In all the recent reports of SCF and it's problems ....there was not one reference to ... the early repayment of the American debt.
Westerly
See Balances post at 515. The great thing about these forums is that subscribers are free to bring any informaiton of relevance or interest to other subscribers and posters. That there, arguably, hasn't been a lot of positive posting may speak volumes about this situation.

[Balance]

Who needs positive postings when the company has been busy spinning yarns to the market?

Example :

"Fresh capital of $27.5m through convertible notes into Southbury Corp and in turn, into SCF."

Really? It was in fact covered by a fully secured prior ranking guarantee by SCF !

Capital = risk. Which part of risk or capital does SCF not understand?

[Alan3285]

It would be helpful if there was an attribution for the item you are quoting.

And I suggest one needs to be careful who one calls a "fool". At least you have the good grace to acknowledge Alan Hubbard as a man of "honour and integrity", in a later posting.

It rather saddens me to see the seeming determination displayed by certain members on this forum to see Alan Hubbard's empire collapse, and to be able to dance on his grave. I suggest that the snide comments and vitriol be saved for the real ratbags in the game, like Hotchin and Watson. Let's have a bit more objectivity here, shall we.

Personally I have not lost a wink of sleep about my exposure to SCF, and eagerly added to my holding of SCF010 today, at a most attractive yield. And before someone decides to label me "naive" I would assure them that I am a veteran investor who has done quite nicely over the years, thank you - even if I have had a few spills along the way!

Well said Colin.

I too have done very nicely out of SCF in the last 6 months or so, and with my eyes wide open.

It is quite sad to see the glee with which any potentially negative news is commented on, and the total absence of any comment on the positive from some posters.

We should all remember that there are many investors much less fortunate than you who are stuck in there with no way out.

Alan.

[Balance]

A positive development - SCF repays its USPP bonds early.

"the total absence of any comment on the positive from some posters."

As stated however, who needs positive when we have the Hubbard cheerleaders ably helping SCF to spin itsway into investors' wallets?

[westerly]

Gee Balance, a positive comment. However you posting of a commentary by some obscure blogger who appears to have an agenda all of his own is more typical of your unusually negative posts to this thread.
Westerly

[Balance]

Guess when this warning was issued?

And guess how many bothered to listen or follow the strong strong warnings?

The response then was similar to the reaction of the Hubbard cheerleaders now - speak no evil, see no evil and hear no evil.


ASB gives warning to small investors

By Georgina Bond


One of the country's largest fund managers has hit out at finance company deposits, saying they pose an unnecessary risk for small investors.

ASB Group Investments head Rob de Luca said New Zealanders had invested more than $8 billion with finance companies at rates of up to 10 per cent - believing their money was secured and their returns were safe.

"The reality is that neither of these things [is] true. Investors put their money with finance companies, seduced by the phrase 'first ranking secured deposits', but in many cases their money is anything but safe."

He said the money was frequently lent on to highly geared property developers or as high-risk personal loans to people unable to borrow from traditional sources.

Investors were not getting the appropriate compensation for the risk.

ASB Group Investments is New Zealand's third-largest fund manager, with more than $5.3 billion under management.

Although in competition with finance companies, "the reality is if one of these guys falls over it's bad for the whole investment sector, not just for them", a company spokesman said.

"We're more concerned that investors do the right thing and no one gets burned."

ASB's analysis of finance company reports showed many were earning weighted average interest margins of between 15 per cent and 40 per cent from their investments, but were paying investors' much lower rates, at between 9 per cent and 10 per cent in return.

"The ironic thing is if someone offered investors a return of 40 per cent they would automatically think the risks were too great.

"But investors aren't necessarily getting the return for that risk or maybe aren't aware of the risk they're actually taking," said De Luca.

Finance companies have had a dream run during the past few years on the back of a rising property market and periods of robust economic growth.

But concern has been mounting about what will happen if the economy and the property market hit the skids.

Yesterday, De Luca was urging caution:

"We've gone through a reasonably strong cycle in the investment space and property space, and we expect that to be a bit more subdued going forward ... we expect to see some issues," he said.

"We're saying to investors - be careful, speak to credit advisers when you look at an investment and really understand what you're investing in. Don't be fooled by the topline rate."

Finance companies came under the spotlight last September when the Securities Commission warned many were not keeping investors informed about the risks they faced - with some not meeting the minimum legal requirements.

That was based on an analysis of 30 companies' disclosure statements and was a precursor to a full report on the state of the industry.

The commission's report, released in April, said finance companies should improve their disclosure to investors.

Areas singled out for attention and improvement included: risk disclosure, principal risks, company activities, related party lending and the use of rating information and other disclosure issues.

A follow-up review of finance companies' disclosure statements this year will focus on documentation, with the commission looking to see if companies have improved their practices.

[Balance]

Gee Balance, a positive comment. However you posting of a commentary by some obscure blogger who appears to have an agenda all of his own is more typical of your unusually negative posts to this thread.
Westerly

Hardly obscure, matey.

Direct link from an NBR article (hope you read THE Publication once in a while - damn expensive but worthwhile from time to time) - http://www.lostsoulblog.com/

Note on Friday NBR interviewed Allied Farmers' Rob Alloway who warned of negative surprises in the Hanover loan book. In fact they were most unpleasant when the company reported yesterday.

[Alan3285]

Well, since it is highly unlikely that [Un]Balance[d] will post this, I'd better do it:

http://www.interest.co.nz/ratesblog/index.php/2010/03/02/south-canterbury-downgraded-to-bb-may-be-cut-below-guarantee-threshold-within-3-months/ (SCF Given BB Rating by S&P - 2 Mar 2010)

Positive: It meets the requirements of the Extended Guarantee Scheme

Negative: It is a downgrade from BB+ and is on creditwatch negative with a potential downgrade in the next period


See now - its not so hard to be objective is it?

Alan.

[winner69]

So what is SCF after this?

It's an investment company - not unlike Equiticorp in the old days. It derives the bulk of its funding from investors - lends some out but invests in companies and lends to them as well??????????

Let's hope it does not become another Equiticorp.

Spot on - SCF is now more of an investment company than a finance company and that is major shift in direction.

Convenants in trust deeds are put in for good cause and it does seem to be a big decision (punt? or giant leap of faith?) by te trustee to allow these breaches which allows SCF to become an investment company instead of a finance company.

All I can think of why is that he knows more than most and that there is an impending huge cash (yep real money) injection on the horizon or that they have somebody lined up to buy Helicopters and Scales ..... possibly a deal already on the table but not consumated

After all drastic and quick action was necessary last week as with the writeoffs SCF was technically broke .... all shareholder equity (and those perpetual things) wiped out .... negative equity .... noy good for a finance company eh

[minimoke]

Positive: It meets the requirements of the Extended Guarantee Scheme

Negative: It is a downgrade from BB+ and is on creditwatch negative with a potential downgrade in the next period
Alan.
Yes Alan the retention of the Extended Guarantee Scheme is a positive - but boy, was that by the skin of SCF's teeth. S&P say:
"Further, SCF’s financial flexibility and, in particular, further shareholder support of SCF, is diminished following the capital injection. That said, but for strong shareholder support evidenced in SCF’s announcement concerning high loan-loss provisions of late yesterday, it is likely that the rating would have been downgraded by more than one notch.”

So if Hubbard hadn't moved what would have happened?

So thats the beacon of hope. But what else did S&P say which should raise flags of warning:
"Liquidity is currently weaker than many New Zealand nonbank deposit takers’ in the ‘BB’ rating category, and should it deteriorate further it is likely to result in the rating being lowered."
Well the hope there, is that debenture investor loyalty has been loyal - but for how much longer? The negative watch can be removed IF investors and liability stakholders continue to back SCF.

What about:
"A further concern is that the announcement of high loan-loss provisions by SCF could retard or even scuttle further recapitalisation initiatives being considered by SCF. If further capital is not injected—should liquidity or further asset quality pressures emerge—it is likely to cause the rating to be lowered." It seems Hubbards cupboard is now bare and what are the chances of a NZX listing? Slim now I'd say.

S&P have flagged not only a one notch down grade (and thats teh Guarantee Scheme stuffed) but also a two notch downgrade:
should liquidity deteriorate it is likely that the rating will be lowered—and potentially by more than one notch—depending on the severity of the deterioration.

Colin may be sleeping well but I reckon there are those within SCF that won't be.

[Balance]

Well, since it is highly unlikely that [Un]Balance[d] will post this, I'd better do it:

http://www.interest.co.nz/ratesblog/index.php/2010/03/02/south-canterbury-downgraded-to-bb-may-be-cut-below-guarantee-threshold-within-3-months/ (SCF Given BB Rating by S&P - 2 Mar 2010)

Positive: It meets the requirements of the Extended Guarantee Scheme

Negative: It is a downgrade from BB+ and is on creditwatch negative with a potential downgrade in the next period


See now - its not so hard to be objective is it?

Alan.

Er .. it's actually a negative.

Note that the statement was issued well after market close?

And no, SCF has not received an extension of the govt guarantee scheme yet - it qualifies from a rating s point of view but there are other requirements like related party transactions etc which SCF still does not meet.

Irrational exuberance - this is the kind of PR nonsense which SCF is infamous for. Now we have posters here doing the same!

[Alan3285]

This is my simple analysis of the current situation with respect to SCF:


Basically, they need around $1b in cash by mid Oct 2010 when the govt guarantee runs out.

That appears to be roughly the amount that is maturing from debentures between now and then, heavily weighted in the week the guarantee runs out.

So, if they have outstanding loans maturing between now and then of about $1b AND if those loans are substantially repaid in full, AND if they don't re-lend it (or lend it very short and secure), then SCF will be fine irrespective of whether the EGS is approved.

If they don't then they have to raise the funds elsewhere by:

1) Borrowing materially past Oct 2010 (I think we can rule out retail deposits for the most part here, so we are talking about wholesale borrowing).

2) Selling 'non core' assets (e.g. HNZ or Scales) or selling off some of the loan book.

3) Capital raising (equity)

4) Debt for equity swap with another stressed finance company


Number (1) looks very difficult without incurring very high interest costs, which would push the medium to longer term position further downhill - not impossible by any means though.

Number (2) has to be on the agenda and I think they'll be pursuing that as fast as possible.

Number (3) is on the agenda too as they have already said. Difficult in the current market, but if Hubbard is willing to 'lose' substantial amounts of his investment, and I think he has clearly demonstrated already that he is, then this could work quite well.

Number (4) would improve the equity position of SCF and improve cash flow by whatever amount(s) they could recover from the additional loan book between now and Oct 2010, but I think that the debenture holders in the third party finance company would not go for it having seen what they believe to be a bad deal from Allied Finance (naively perhaps, but it is perceptions that count).


If they can't do any of the above (or all / some of them in combination), then everyone except the debenture holders are looking at almost total wipeout come Oct 2010.

Apologies if this has been asked before, but does anyone know if the bondholders are covered by the govt guarantee scheme? I assume not, in which case they would likely lose eveything too, but they may be?


Please update with any more specific numbers if you have them.


Thanks,

Alan.

[minimoke]

Basically, they need around $1b in cash by mid Oct 2010 when the govt guarantee runs out.
I htink its around $490m in June and $650m in Ocotber



1) Borrowing materially past Oct 2010 (I think we can rule out retail deposits for the most part here, so we are talking about wholesale borrowing).
Agree retail borrowing can't be relied upon. After October the Guarantee scheme will be tougher to get into (and SCF is trending down at the moment) and costs of entry will be higher. As for wholesale borrowing - isn't that just delaying the inevitable for a bit longer. There seems so much borrowing and giving to in order to repay investors and new capital coming in to shore up current investors and so much shuffling of the assets and jiggling with trust deeds its going to get harder to know just what is what what. How are Fonterra's cash reserves - they might be interested to keep the multitude of diary farm exposures afloat and asset values high.



2) Selling 'non core' assets (e.g. HNZ or Scales) or selling off some of the loan book.
Agree Helicopters and Scales have to go on the block - but at fair value, a discount (distressed seller) or a premium (great forward order books and long term contracts)? And can they sell in time?


3) Capital raising (equity)
I don't see this as an option anymore - too many yellow and red flags flying now.


4) Debt for equity swap with another stressed finance company
Doubt this will occur. Which stressed finance company? Can it be done by October? As you point out there will be reluctance after the ALF experiences.

What about Option 5) government intervention. Governements in the past have bailed out banks, railways and airlines where it is politically or economically expedient.

[Alan3285]

Hi Minimoke,


I htink its around $490m in June and $650m in Ocotber

Okay.



Agree retail borrowing can't be relied upon. After October the Guarantee scheme will be tougher to get into (and SCF is trending down at the moment) and costs of entry will be higher. As for wholesale borrowing - isn't that just delaying the inevitable for a bit longer. There seems so much borrowing and giving to in order to repay investors and new capital coming in to shore up current investors and so much shuffling of the assets and jiggling with trust deeds its going to get harder to know just what is what what. How are Fonterra's cash reserves - they might be interested to keep the multitude of diary farm exposures afloat and asset values high.


Wholesale funding out for a period would allow SCF time to continue winding down the existing loan book - call it bridging finance perhaps.

That would then let them repay the wholesale facilities if required, and get things onto a firm footing forwards but with a smaller base.



Agree Helicopters and Scales have to go on the block - but at fair value, a discount (distressed seller) or a premium (great forward order books and long term contracts)? And can they sell in time?



No way of knowing, but I'm sure they'll pursue it.





I don't see this as an option anymore - too many yellow and red flags flying now.



Maybe. I would consider it myself, and I believe many others would too - it all depends on the offer.

For example, what if they were issuing 100b new shares at $0.01 each?

The new shareholders would have substantial control. I'd go for that.

Of course, that is just made up for the purposes of illustration and it would effectively destroy any value for the existing shareholder (Hubbard) but as I said above, perhaps he doesn't care about that.

It is all about the numbers.





Doubt this will occur. Which stressed finance company? Can it be done by October? As you point out there will be reluctance after the ALF experiences.



Strategic?

However, I don't put a high probability on it at all - quite unlikely to see this.





What about Option 5) government intervention. Governements in the past have bailed out banks, railways and airlines where it is politically or economically expedient.

I guess I see an extension of the guarantee scheme in that light and / or as an another type of wholesale funding.

Why would the govt directly bail them out though when they could put them into the EGS under the 'public interest' mechanism?



Alan.

[winner69]

Strategic for SCF ... Chris Lee has touted this

But what would it really do .... yep raise equity on paper with assets of dodgy nature with uncertain value .... isn't SCF after the real stuff .... like real money

As for a govt bailout I would be apalled .... if things can't stand on their own they need to fail ... thats the way things have gone for ages

[minimoke]

.... if things can't stand on their own they need to fail ... thats the way things have gone for ages
Banks seem to be able to stand - hence they appear to be staying clear of the Guarantee Scheme. Finance Companies can't stand on their own so they are being propped up by the tax payer who is providing the crutch that is the Guarantee Scheme (with some assistance with the players and their entry fee).

There are other examples of government intervention. For example the Rugby World Cup can't stand on its own; NZ's Americas Cup can't. Back in Nov '08 Bill English was very clear that the goverenment was considering bail out options and were preparing contingency plans for big business - I doubt these plans have been shelved, though perhaps mothballed waiting for the right event to bring them back into the light of day.

[Alan3285]

Hi winner69,


Strategic for SCF ... Chris Lee has touted this

But what would it really do .... yep raise equity on paper with assets of dodgy nature with uncertain value .... isn't SCF after the real stuff .... like real money



If it were a straight debt for equity swap it could only improve SCF liquidity - no way for it to be worse unless they somehow increased actual cash costs of administration beyond whatever they were reaslising (repayments and interest) from the Strategic loan book.





As for a govt bailout I would be apalled .... if things can't stand on their own they need to fail ... thats the way things have gone for ages




I totally agree with you.

I also don't like the guarantee scheme even, but IF the amount that the financiers are paying in premiums is market then my concerns are reduced, but in that case, why not let the market provide the insurance scheme.

In fact if the premiums are market related, then the govt should be able to sell the insurance scheme to an insurer for the same amount as they have put aside in their books, and just take it off their books altogether.

I suspect not however.

Alan.

[westerly]

[QUOTE=Alan3285;295392]Hi winner69,


Quote
'If it were a straight debt for equity swap it could only improve SCF liquidity - no way for it to be worse unless they somehow increased actual cash costs of administration beyond whatever they were reaslising (repayments and interest) from the Strategic loan book."


SCF is reducing it's exposure to property. Why would they take on Strategics' property loans which appear to be under some stress as far as repayment goes.?
It would not be a big surprise if Scales and the Helicopters went back to Allan Hubbard once the capital problems are sorted. The Press editorial this morning seemed reasonably confident in the future of SCF.

Westerly

[Alan3285]

If it were a straight debt for equity swap it could only improve SCF liquidity - no way for it to be worse unless they somehow increased actual cash costs of administration beyond whatever they were reaslising (repayments and interest) from the Strategic loan book."


SCF is reducing it's exposure to property. Why would they take on Strategics' property loans which appear to be under some stress as far as repayment goes.?



In exactly the same way as it was positive for ALF (but not necessarily for its existing shareholders), it would improve liquidity of SCF by whatever amounts they were able to extract / recover from the loan book in the coming months.

Subject to somehow massively increasing their admin costs (I can't see how), it would all be extra cash flow for SCF.

That's the only reason for SCF to do something like that, but as I said above, I don't think the scenario is actually very likely, not least due to the fact that I don't believe the Strategic investors would approve it.





It would not be a big surprise if Scales and the Helicopters went back to Allan Hubbard once the capital problems are sorted. The Press editorial this morning seemed reasonably confident in the future of SCF.

Westerly

Perhaps, but it would have to be at market value and for 'fair' consideration.

Given that AH has now got a lot of his wealth in SCF as ords, I can't see how that would happen since it would require a cancellation of those ords - not likely in the foreseeable future at least.

As I set out above, I am not at all sure SCF can make it past 12 Oct 2010.

It'll be fun on the way for some though!

Alan.

[Balance]

[QUOTE=Alan3285;295392]Hi winner69,


Quote
'If it were a straight debt for equity swap it could only improve SCF liquidity - no way for it to be worse unless they somehow increased actual cash costs of administration beyond whatever they were reaslising (repayments and interest) from the Strategic loan book."


SCF is reducing it's exposure to property. Why would they take on Strategics' property loans which appear to be under some stress as far as repayment goes.?
It would not be a big surprise if Scales and the Helicopters went back to Allan Hubbard once the capital problems are sorted. The Press editorial this morning seemed reasonably confident in the future of SCF.

Westerly

If Strategic investors are prepared to swap debt for SCF's equity, it will be a good deal for both.

[minimoke]

As I set out above, I am not at all sure SCF can make it past 12 Oct 2010.

Isn't it the next 90 days that counts - the date when S&P are due their next rating. If its a one point drop its all over rover. If they retain current rating then they may get through to Oct 2010.

[mrmoosy]

Isn't it the next 90 days that counts - the date when S&P are due their next rating. If its a one point drop its all over rover. If they retain current rating then they may get through to Oct 2010.

Wasn't the BB rating level necessary to be held for them to make application for the guarantee extension. Is a change after application deadline irrelevant?

[minimoke]

Wasn't the BB rating level necessary to be held for them to make application for the guarantee extension. Is a change after application deadline irrelevant?
The BB sees them safe until October. But if they go down a point in three months time this means they have to go up in the following period/s to get back to that threshold by October (or when they apply for entry into teh extended scheme). Going down would affirm a downward trend - at some point supporters will start to loose the faith and I think that downgrade would be the tipping point. And its not just one point they are up against - its been flagged it could be two.

They need to be BB to be eligible for entry into the extended scheme. They also need to be a finance business. As mentioned earlier they are now a business involved in helicopters, apples and finance - so presumaby they have to divest those interests by the time they apply. That I think makes them a distresed seller of those assets if the sale doesn't go through soon. The longer tehy leave hte cheaper teh price, the more vulnerabel they become. Best to have that BB secured in 3 months time!


Don't forget the BB is on long term rating. Their short term ratings are already at B (without a positive credit watch) which means facing major ongoing uncertainty.

[Alan3285]

If Strategic investors are prepared to swap debt for SCF's equity, it will be a good deal for both.


I completely agree, but I think there is a (mistaken) impression around that the Hanover investors somehow got done by ALF.

In reality, I believe the Hanover investors got as good a deal as they could have, and it was actually the ALF pre-existing investors who lost out.

The problem would be if the Strategic investors were offered a debt for equity trade into SCF, they might reject it on a perception that it wasn't good for Hanover.

I'd be happy to see it happen though.

Alan.

[Alan3285]

A supportive editorial from Stuff here:

http://www.stuff.co.nz/the-press/opinion/editorials/3396514/Editorial-South-Canterbury-Finance-rescue


The contrast they draw with Watson / Hotchin is spot on in my opinion:




Hubbard is renowned not for high-living but for being a generous philanthropist and a businessman with integrity. And that integrity was visible this week in the rescue package for SCF and its 40,000 investors.




Alan.

[minimoke]

A supportive editorial from Stuff here:
http://www.stuff.co.nz/the-press/opinion/editorials/3396514/Editorial-South-Canterbury-Finance-rescue
The contrast they draw with Watson / Hotchin is spot on in my opinion:
Alan.
If we had a continuum with Hotchin/Watson at one end and Mother Theresa at the other, Hubbard clearly does not belong at the Hotchin end - I think we would all agree on that. But let’s not get too carried away with the AH Glee Club.

And lets face it - why should Hotchin and Watson be held in apparent disdain. They have done a very good job of protecting shareholder interests in turbulent times - and that was their primary responsibility. Is it fair to say Hubbard did the same during the good times?

Hotchin and Watson have probably done their bit to keep the good folk at Archibald Motors employed. We can follow this trail to prestige vehicle marques in Europe, keeping leading edge motor manufacturers employed looking for better efficiency engines thus helping solve the worlds global warming problems. Hubbard, by keeping his Volkswagen is now linked to Porche.

Hotchin and Watson have no doubt kept bespoke craftsmen employed so those skills of building high quality homes and leading by example in the Knowledge Economy by looking for the latest in technological innovations. AH might have thrown a bit of work to Tony Boyce.

Hotchin and Watson clearly have a heart for the troubled in mind and insecure in democracy. They have supported the Fijian economy and their workers during Banniramas illegal coup. Have the moteliers in Geraldine seen much of AH?

They have also made significant contributions to the body sculpting and personal image industries. Without them I'm sure we all wouldn’t be so familiar with the benefits of Botox and liposuction. I’m not sure AH has even paid for a bottle of Lord Grecian.

These are all honest industries, just as dairy and water are.

But - on a more serious matter. I do take issue with Sandy Maier saying SCF have "Passed cleanly over that hurdle" with respect to their BB rating. That’s is wrong and dishonest. He's clearly unaware that there are 10 hurdles in his particular race and he's not at the end of the race yet. He's dropping in pace going from a BB+ to a BB with a negative credit watch - how is that a "clean" pass? His heart is beating at a B rate - and that’s geriatric and may not even get him through in a Masters event. As for the hurdles ahead, there’s a head wind which is building in strength. His lungs are bursting and the doctors reckon there’s a risk of a one point down grade and that old ankle injury threatens a further point down grade which would totally hobble him.

Maier is clearly spinning as Hotchin and Watson have done previously. And it is Hubbard that made that appointment.

[Balance]

Minimoke, good one!

I guess Maier has alligators biting in every direction and he has to keep staff morale up and investors confident. I do not envy him his task.

What is wrong however is if he misleads the public and induces them with PR spin to deposit money with SCF outside of the govt g'ttee period.

That is the single biggest issue I have with SCF and Hubbard over the last 2 years - the relentless PR BS fed to the market. It is immoral and unethical.

[winner69]

..... away with the AH Glee Club.


you don't watch Glee do you?

[minimoke]

you don't watch Glee do you?
No!. Should I?

[minimoke]

...the relentless PR BS fed to the market. It is immoral and unethical.
And I continue to be disappointed by the shabby reporting in the media. How about this as an opening paragraph in the ODT.

South Canterbury Finance passed a major hurdle yesterday to its ongoing survival when it retained the important BB credit rating by Standard and Poor's, qualifying it for the Government's new retail guarantee scheme.

SCF did not retain its BB rating. It lost is BB+ rating and it was placed on Credit Watch with Negative implications. It didn't pass a hurdle - it slipped backwards! It is not qualified for the new (its not new!) retail scheme. It is just eligible to apply for the extended scheme - and its application would have been stronger if it had a BB+.

[Balance]

And I continue to be disappointed by the shabby reporting in the media. How about this as an opening paragraph in the ODT.


SCF did not retain its BB rating. It lost is BB+ rating and it was placed on Credit Watch with Negative implications. It didn't pass a hurdle - it slipped backwards! It is not qualified for the new (its not new!) retail scheme. It is just eligible to apply for the extended scheme - and its application would have been stronger if it had a BB+.

That has been the problem with all the whole finance sector debacle. The companies kept on spinning and the media slavishly reported accordingly. A big part of it in the past was because of the huge advertising revenue generated by the companies.

Now the media simply reports the PR spin as factual - not even bothering to read carefully behind the spin.

But then, what's new? We have posters here doing the same and would happily like everyone, especially the Mum and Dad investors, to just read the spin.

Disgraceful, unethical and immoral.

[Balance]

Mystery cash? Any cash is good as long it is not like the $25m of 'fresh' capital which turned out to be a fully secured first ranking loan!

Mystery cash good for SCF
By JEFF TOLLAN - The Timaru Herald Last updated 05:00 06/03/2010

South Canterbury Finance is set to get a new injection of capital, but chairman Allan Hubbard is keeping the source of the new money under wraps.

The Timaru accountant said in spite of what some media commentators have said, SCF was well on the road to recovery.

SCF has 40,000 investors around the country with $1.4 billion tied up in it. Last week Mr Hubbard invested $152 million of his family fortune in the finance company, but still more is needed. He said the recovery would take time.

"There's an enormous amount of time wasted, but you can't change things quickly and you can't raise big chunks of money quickly. You don't just go down to the corner store and say, `give me another million'."

On Wednesday, Standard & Poor's downgraded SCF's credit rating, from BB+ to BB, and placed its long-term rating on CreditWatch with negative implications, which means it has ongoing concerns.

[winner69]

Maybe it was the cash he had stuffed away in his mattress .... or buried in the back garden

Or maybe as the corner dairy couldn't give him a million he went to The Warehouse and aske for 25 mill

[winner69]

S.h.i.t oh day ..... did Lee really mean to write this about his hero Hubbard ..... he seems a bit pissed off

http://www.chrislee.co.nz/index.php?page=taking-stock

[Snapper]

Well its made him look like a dick, hasn't it. Think of all the gold his clients have piled into scf...and strategic...and st laurence...and hanover...

[Balance]

Well its made him look like a dick, hasn't it. Think of all the gold his clients have piled into scf...and strategic...and st laurence...and hanover...

Not his fault, of course.

How was he expected to know that just about the whole sector would collapse? His ratings system was so good that he correctly predicted Bridgecorp.

[Steve]

S.h.i.t oh day ..... did Lee really mean to write this about his hero Hubbard ..... he seems a bit pissed off

http://www.chrislee.co.nz/index.php?page=taking-stock

What is the defamation case that Chris Lee mentions that he is preparing for? I don't recall any comments where he has been completely wrong?

[herbert240]

I understand Sir Robert Jones is suing Chris for defamation

[Balance]

Well its made him look like a dick, hasn't it. Think of all the gold his clients have piled into scf...and strategic...and st laurence...and hanover...

From 2007 :

Footnote:

We have two parcels of Hanover Capital bonds available for sale both with term of 21 months. They are:

$23,000
9.75%,
maturity 16/1/09
$15,000
9.75%
maturity 16/1/09
Any interested buyers should ring Denis Ryan 04 296 1023.

Contact details

Our mailing address will be P.O. Box 1633, Paraparaumu Beach.
Telephones (04) 29 61023; Fax 04 2961028.

[winner69]

From 2007 :

Footnote:

We have two parcels of Hanover Capital bonds available for sale both with term of 21 months. They are:

$23,000
9.75%,
maturity 16/1/09
$15,000
9.75%
maturity 16/1/09
Any interested buyers should ring Denis Ryan 04 296 1023.

Contact details

Our mailing address will be P.O. Box 1633, Paraparaumu Beach.
Telephones (04) 29 61023; Fax 04 2961028.

Probably found a buyer for them as well ..... and now the proud owner of heaps of ALF shares

Was that you I saw in the crowds down at the Occidental the other night?

[Steve]

I understand Sir Robert Jones is suing Chris for defamation

What has Chris ever said about Bob? I don't recall anything in the press?

[winner69]

There's an apology on his website a few years ago .... got his figures wrong when raving on about Bob getting paid out management fees or something .... a bit like the DNZ saga now

Might be that

[Balance]

Don't count upon the government coming to the rescue is the message here.

Excerpt :

"Mr Lee also prescribes:

It needs to get the extended Crown guarantee confirmed as soon as the audited accounts are out. (There could be good news with this announcement as bad debt provisioning may have been marginally over-estimated in previous announcements).

The Treasury must respect the additional capital from Hubbard and can show this by promptly granting the extended guarantee.
However, it is questionable whether either of these points should or will happen. The legislation specifies the criteria for the extension and although the Minister of Finance could grant them the extension now, he will probably want to wait until a short time before the existing guarantee expires before making decisions about the extension applications. It is not in the public interest to grant special favours to particular institutions, especially when Parliament has considered the issue and passed legislation about the criteria that it considers consistent with the public interest. Note that the legislation suggests the public interest not as a grounds for granting the guaranteess, but for not granting them (i.e. if the minister thinks it is not in the public interest to grant the guarantee to a particular institution, he can legally refuse them a guarantee, but if he thinks it is in the public interest to grant a guarantee to an institution that does not meet the criteria, he can't do so under that legislation). It is also possible that the guarantee could be withdrawn (for new deposits) if the company is subsequently downgraded below BB. Regarding the audited accounts, although there are big write downs in the unaudited accounts, they do not seem at all unreasonable, and the auditor may find other parts of the company's assets that should have greater provisions."

Notice how SCF's cheerleaders have gone quiet? Icy-cold-Artic-winter reality is setting in.

High profile supporters, like Chris Lee, know that Hubbard has nothing else to throw into SCF. The company needs external capital and/or the government guarantee to continue.

Don'tr mistake what we write for glee - business is about business, not about emotions.

[Enumerate]

Isn't it ironic that the organisations who were asleep at the wheel (S&P, Moody's) triggering the financial crisis (due to dodgy ratings for collateralised subprime debt) are now minting it as everyone needs a rating to even survive.

The retail deposit government guarantee was a knee jerk reaction by Cullen ... it was bad policy and is bad policy.

Isn't it even more ironic that the scheme may put more finance companies out of business than it saved during the troubles.

God save us from policy analysts in Wellington ...

[minimoke]

The retail deposit government guarantee was a knee jerk reaction by Cullen ... it was bad policy and is bad policy.

Didn't Australia introduce one first and the Government were worried cash would flow off shore to a safe haven.

[CJ]

Didn't Australia introduce one first and the Government were worried cash would flow off shore to a safe haven.

Correct. The problem is institutions didn't plan for the end of the guarantee.

[Alan3285]

Correct. The problem is institutions didn't plan for the end of the guarantee.

That's absolutely correct - and its what SCF is focusing very closely on now - just depends if they are too late or not (see my post above for my analysis on that).

I'm still looking at this as a potential opportunity, with a great yield IF they come through Oct 2010, but as others have said, I'm not going to lose sleep over the speculative corner of my portfolio.

Alan.

[Balance]

Hm - I see there's over $100,000 done today at over 30% in the SCF010.

Very telling.

[QOH]

on what they would do if they hold 2011 and 2012 debentures. Would you get out now, and take a big loss or hang in there and hope if SCF goes under, that it is before the govt guarantee runs out?
I'm finding it a hard call to make.

[minimoke]

on what they would do if they hold 2011 and 2012 debentures. Would you get out now, and take a big loss or hang in there and hope if SCF goes under, that it is before the govt guarantee runs out?
I'm finding it a hard call to make.
What do you reckon the chances of SCF defaulting between now and 12 October 2010. If you reckon "High" then you'de keep your debentures.

If you reckon "low", what do you reckon the chances are of SCF retaining or bettering it's BB rating at the time the Govt decides to include them in the extended scheme. If you reckon "High" then you keep the debentures.

If you reckon low then after 12 October and before 31 Dec 2011 what do you reckon the chances are of SCF defaulting. If "high" you keep them.

If low then keep the 2011. As for the 2012 you must have good reasons for getting these in the first place.

Any improvements on this plan of attack?

[Alan3285]

What do you reckon the chances of SCF defaulting between now and 12 October 2010. If you reckon "High" then you'de keep your debentures.

If you reckon "low", what do you reckon the chances are of SCF retaining or bettering it's BB rating at the time the Govt decides to include them in the extended scheme. If you reckon "High" then you keep the debentures.

If you reckon low then after 12 October and before 31 Dec 2011 what do you reckon the chances are of SCF defaulting. If "high" you keep them.

If low then keep the 2011. As for the 2012 you must have good reasons for getting these in the first place.

Any improvements on this plan of attack?


Sounds reasonable to me.

As someone above pointed out, there is good demand for the bonds at current yields from what are probably the more sophisticated investors - I doubt too many M&Ds are doing much.

Alan.

[jmsnz]

What do you reckon the chances of SCF defaulting between now and 12 October 2010. If you reckon "High" then you'de keep your debentures.

If you reckon "low", what do you reckon the chances are of SCF retaining or bettering it's BB rating at the time the Govt decides to include them in the extended scheme. If you reckon "High" then you keep the debentures.

If you reckon low then after 12 October and before 31 Dec 2011 what do you reckon the chances are of SCF defaulting. If "high" you keep them.

If low then keep the 2011. As for the 2012 you must have good reasons for getting these in the first place.

Any improvements on this plan of attack?
Sounds good, but how do you work it out.

There might be a risk/exposure part to the equation that says you sell some and hold some. If it was 90% of your portfolio your view is probably different to if it is 2%.

Good Luck!!

[Awamoa]

on what they would do if they hold 2011 and 2012 debentures. Would you get out now, and take a big loss or hang in there and hope if SCF goes under, that it is before the govt guarantee runs out?
I'm finding it a hard call to make.

Do you mean Bonds or Debentures.
If its debentures you have to keep them until maturity.
Only the bonds can be traded.

[QOH]

Do you mean Bonds or Debentures.
If its debentures you have to keep them until maturity.
Only the bonds can be traded.
I meant bonds, the SCF 010 and 020.
If SCF were to go under before October 2010, won't Alan Hubbard lose most of his personal fortune and therefore be reluctant to take that option.
From a selfish point of view I wish they would just wave the white flag now.

[Balance]

I meant bonds, the SCF 010 and 020.
If SCF were to go under before October 2010, won't Alan Hubbard lose most of his personal fortune and therefore be reluctant to take that option.
From a selfish point of view I wish they would just wave the white flag now.

How sure are you that the bonds are guaranteed by the government if SCF waves the white flag now?

Genuinely interested to know as the fixed interest players out there are not sure.

[QOH]

How sure are you that the bonds are guaranteed by the government if SCF waves the white flag now?

Genuinely interested to know as the fixed interest players out there are not sure.

In that case I'm not sure at all.
Is there any way to find out?
If they aren't covered I'm tempted to take what I can get right now.

[Alan3285]

Hi QOH,


In that case I'm not sure at all.
Is there any way to find out?
If they aren't covered I'm tempted to take what I can get right now.

My understanding is that the bond holders are NOT covered by the govt guarantee.

The security of the SCF030 bonds is strong due to them maturing ahead of Oct 2010 and hence the liquidity of SCF is still strong up to that point, but the SCF020 and SCF010 bonds are later, and as such I can't see how they can be covered.

It has always been my belief that they are not covered, and the market seems to agree in that they are yielding more than 20% pa.

Alan.

[winner69]

Alan .... sort of consensus opinion is that coupon payments on the SCF010 and SCF020 are guranteed up to Oct 2010 and that coupon payments after this date are not ... and that the capital repayment of both is not guaranteed, because they mature after october 2010

Is that how you see it? rather than just a big NOT

But essentially a NOT because no government guarantee at getting your capital back

[Alan3285]

Hi Winner,


Alan .... sort of consensus opinion is that coupon payments on the SCF010 and SCF020 are guranteed up to Oct 2010 and that coupon payments after this date are not ... and that the capital repayment of both is not guaranteed, because they mature after october 2010

Is that how you see it? rather than just a big NOT

But essentially a NOT because no government guarantee at getting your capital back


Yes.

I had not considered the interest credited prior to Oct 2010 specifically, but I guess it might be (I'd have to go read in detail to be sure).

However, the bulk of the value is in the capital, and I am pretty sure that is not covered.

The other thing that might change this, is IF they got into the extended guarantee scheme, then the terms of that might be different. However, at this stage, I would be suprised if SCF got in to the EGS come Oct 2010.


Alan.

[Balance]

Hi Winner,




Yes.

I had not considered the interest credited prior to Oct 2010 specifically, but I guess it might be (I'd have to go read in detail to be sure).

However, the bulk of the value is in the capital, and I am pretty sure that is not covered.

The other thing that might change this, is IF they got into the extended guarantee scheme, then the terms of that might be different. However, at this stage, I would be suprised if SCF got in to the EGS come Oct 2010.


Alan.

SCF's biggest problem is that related party transactions must be less than 15% of prescribed capital to qualify for the EGS. Currently it's in excess of 100%.

[Alan3285]

Hi Balance,


SCF's biggest problem is that related party transactions must be less than 15% of prescribed capital to qualify for the EGS. Currently it's in excess of 100%.

What are the (bulk of the) related party transactions that come to more than 100% of capital?

Can you list them with approximate values (no-one to hold you to it if out a bit - I am just trying to get a ball-park idea of what they have to do)?

Thanks,

Alan.

[Balance]

In that case I'm not sure at all.
Is there any way to find out?
If they aren't covered I'm tempted to take what I can get right now.

I can tell you that I have attempted to get a straight answer from fixed interest brokers out of SCF.

None forthcoming.

Strange, isn't it?

[Balance]

Hi Balance,



What are the (bulk of the) related party transactions that come to more than 100% of capital?

Can you list them with approximate values (no-one to hold you to it if out a bit - I am just trying to get a ball-park idea of what they have to do)?

Thanks,

Alan.

http://www.briangaynor.co.nz/blog/2009/10/5/south-canterbury-finance-what-about-the-related-party-loans.html

[Alan3285]

Hi Balance,


I can tell you that I have attempted to get a straight answer from fixed interest brokers out of SCF.

None forthcoming.

Strange, isn't it?

How can SCF010 or SCF020 be covered when they both mature after Oct 2010?

The most that could be covered (as outlined above) is the interest up to Oct 2010, but not the capital.

Alan.

[Alan3285]

http://www.briangaynor.co.nz/blog/2009/10/5/south-canterbury-finance-what-about-the-related-party-loans.html

Hmmm, spending 5 seconds thinking about it leads us to the conclusion that this is a bit out of date (it was updated for the 30 Jun 2009 accounts), in that the equity was just increased by $150m, giving an adjusted calc of $230m / $(225m + 150m) ~ 60%.

ALso, I think that HNZ is now a subsidiary, not a related party (?), so that means, ceteris paribus we now have:

($230m - $19m) / $375m ~ 56%

Reducing the RPTs from 56% to 15% by refinancing them elsewhere would lead to a cash inflow to SCF of about 40% of equity (another $150m).

If you are interested in the true position, probably a look at the latest (31 Dec 2009) financials would be instructive as to what it might be today.


Alan.

[Balance]

Hmmm, spending 5 seconds thinking about it leads us to the conclusion that this is a bit out of date (it was updated for the 30 Jun 2009 accounts), in that the equity was just increased by $150m, giving an adjusted calc of $230m / $(225m + 150m) ~ 60%.

ALso, I think that HNZ is now a subsidiary, not a related party (?), so that means, ceteris paribus we now have:

($230m - $19m) / $375m ~ 56%

Reducing the RPTs from 56% to 15% by refinancing them elsewhere would lead to a cash inflow to SCF of about 40% of equity (another $150m).

If you are interested in the true position, probably a look at the latest (31 Dec 2009) financials would be instructive as to what it might be today.


Alan.

Out of date? That's putting it mildly!

SCF is still using accounts from 30 June 2009 to raise money from the public - accounts we now know to be grossly inaccurate. Note that SCF has had to provide for another $180m of losses and impairments in its latest accounts - less than 4 months after it released its prospectus to the market in October 2009. No wonder Forsyth Barr and SCF other advisors have not been able to find investors to put capital into SCF.

Your numbers are similarly grossly inaccurate - just hope you have not been using numbers like them with seconds of thinking to make investment decisions!

You have not accounted for the $155m loss for 6 months to 31 Dec 2010.

So equity = $225m - $155m loss + $153m 'equity injection" = $223m.

15% of $223m = $34m. SCF has a long long way to go to meet the 15% related party criteria to qualify for EGS.

[Balance]

Hi Balance,

How can SCF010 or SCF020 be covered when they both mature after Oct 2010?

The most that could be covered (as outlined above) is the interest up to Oct 2010, but not the capital.

Alan.

The question is "Are the bonds covered by the guarantee if SCF goes under before Oct 2010?"

That's the impression given by some out there to give comfort to investors who have been sold the bonds by them.

When confronted to give a straight answer and in writing, they suddenly become very quiet.

[minimoke]

Hi Balance,



How can SCF010 or SCF020 be covered when they both mature after Oct 2010?

The most that could be covered (as outlined above) is the interest up to Oct 2010, but not the capital.

Alan.
I thought that with the existing Guarantee Scheme if there is a default event prior to 12 October 2010 then "the principal sum borrowed will be paid back plus any interest required to be paid under the terms of the institution’s indebtedness to the depositor or investor". A "Default Event" can be:
- SCF fails to make a payment that is due (like interst)
- SCF becomes insolvent
- bankruptcy proceedings start
- liquidator or reciever called in
- SCF is placed under Statutory maangement.

So isn't it then that the SCF0101 and SCF 020 will be covered in full (principal and interest) up to 12 October 2010

With the extended Guaranteee (which is a seperate scheme) it is only securities that become due and payable between 12 October 2010 and 31/12/2011. The SCF010 and SCF 1020 principal beyond 12 October 2010 is knackered, in the event of a default, because
- SCF aren't in the Extended Guarantee scheme
- and even if they were the principal amount payable date falls outside the extended period - 31/12/2011.

[Alan3285]

Out of date? That's putting it mildly!

SCF is still using accounts from 30 June 2009 to raise money from the public - accounts we now know to be grossly inaccurate. Note that SCF has had to provide for another $180m of losses and impairments in its latest accounts - less than 4 months after it released its prospectus to the market in October 2009. No wonder Forsyth Barr and SCF other advisors have not been able to find investors to put capital into SCF.

Your numbers are similarly grossly inaccurate - just hope you have not been using numbers like them with seconds of thinking to make investment decisions!

You have not accounted for the $155m loss for 6 months to 31 Dec 2010.

So equity = $225m - $155m loss + $153m 'equity injection" = $223m.

15% of $223m = $34m. SCF has a long long way to go to meet the 15% related party criteria to qualify for EGS.

The five seconds was an attempt to double the time you had spent on it. Now we're up to 10 seconds between us! As I'm not currently in SCF, I'm not about to spend a lot of time digging out the figures right now.

So, which is it? Are we using 30 Jun 2009 accounts, or the 31 Dec 2009 accounts? What's the latest info available on the RPTs? I would think that if you pull the 31 Dec 2009 accounts, they should give us updated numbers of some sort at least. Whether the detail is there is another question entirely, but at least it would be more up to date.

Alan.

[Alan3285]

Hi MiniMoke,


I thought that with the existing Guarantee Scheme if there is a default event prior to 12 October 2010 then "the principal sum borrowed will be paid back plus any interest required to be paid under the terms of the institution’s indebtedness to the depositor or investor". A "Default Event" can be:
- SCF fails to make a payment that is due (like interst)
- SCF becomes insolvent
- bankruptcy proceedings start
- liquidator or reciever called in
- SCF is placed under Statutory maangement.

So isn't it then that the SCF0101 and SCF 020 will be covered in full (principal and interest) up to 12 October 2010

With the extended Guaranteee (which is a seperate scheme) it is only securities that become due and payable between 12 October 2010 and 31/12/2011. The SCF010 and SCF 1020 principal beyond 12 October 2010 is knackered, in the event of a default, because
- SCF aren't in the Extended Guarantee scheme
- and even if they were the principal amount payable date falls outside the extended period - 31/12/2011.

If you can find some reference that speaks explicitly to whether the bonds are covered from SCF itself, or RBNZ or similar, I would love to see it.

In the absence of anything specific (and most guidance will necessarily be generic at least on the RBNZ site), I am still assuming that it is only the retail depositors that are covered, and not the exchange traded securities and will only re-invest my previous SCF gains on that 'worst case' basis, but I'd be very happy to see any definitive statement on the scope of the guarantee.

Alan.

[Balance]

Which is it?

Are they using 30 Jun 2009 accounts as you claim, or are they using the 31 Dec 2009 accounts that you refer to?

What's the latest info available on the RPTs?

Alan.

Alan, how can they use 31 Dec 2009 accounts when they are not finalised and audited? Can I kindly suggest you go to SCF's web-site and have a look? That's what I did.

http://www.scf.co.nz/investments/scf-prospectus.pdf/view

Also, have a look at this.

http://business.scoop.co.nz/2010/03/01/half-year-loss-group-restructuring/

Just need to be doubly careful of the spin that SCF is now infamous for in the market.

[Balance]

Hi MiniMoke,



If you can find some reference that speaks explicitly to whether the bonds are covered from SCF itself, or RBNZ or similar, I would love to see it.

In the absence of anything specific (and most guidance will necessarily be generic at least on the RBNZ site), I am still assuming that it is only the retail depositors that are covered, and not the exchange traded securities and will only re-invest my previous SCF gains on that 'worst case' basis, but I'd be very happy to see any definitive statement on the scope of the guarantee.

Alan.

So would we all.

[Alan3285]

Alan, how can they use 31 Dec 2009 accounts when they are not finalised and audited? Can I kindly suggest you go to SCF's web-site and have a look? That's what I did.

http://www.scf.co.nz/investments/scf-prospectus.pdf/view

Also, have a look at this.

http://business.scoop.co.nz/2010/03/01/half-year-loss-group-restructuring/

Just need to be doubly careful of the spin that SCF is now infamous for in the market.

Okay thanks - its just that I thought you were referring to the 31 Dec 2009 numbers above, but they are just 'informal' at this stage.

Alan.

[minimoke]

Hi MiniMoke,

If you can find some reference that speaks explicitly to whether the bonds are covered from SCF itself, or RBNZ or similar, I would love to see it.

In the absence of anything specific (and most guidance will necessarily be generic at least on the RBNZ site), I am still assuming that it is only the retail depositors that are covered, and not the exchange traded securities and will only re-invest my previous SCF gains on that 'worst case' basis, but I'd be very happy to see any definitive statement on the scope of the guarantee.

Alan.
Its all getting a bit moot - and we probably won't know for sure until SCF has a default event and the guarantee is called.

But what we should have confidence in is that the Guarantee Scheme covers Bonds - and I don't think there is any doubt that SCF010 is a Bond.

The Guaranteee Scheme does not cover equity like instruments. With SCF010 you are not owning part of SCF nor recieving a dividend. You are recieving interest and a promise the loan will be repaid. So this also suggests SCF010 is covered as a debt instrument.

I don't think there is any suggestion that SCF010 is a subordinated debt. Its a secured first ranking fixed rate bond.

So it shoudl be covered??

Technechalities that wil hopefully never have to be questioned.

But heres another for you. If the Guarantee Scheme expires at 12.01am on 12 October 2010 (which according to the Guarantee deed it will) do they mean 1 minute past midnight on the night the 11th and the 12th of October or do they mean 12.01pm - being just after noon on the 12th?

[Alan3285]

Hi MiniMoke,


Its all getting a bit moot - and we probably won't know for sure until SCF has a default event and the guarantee is called.

But what we should have confidence in is that the Guarantee Scheme covers Bonds - and I don't think there is any doubt that SCF010 is a Bond.

The Guaranteee Scheme does not cover equity like instruments. With SCF010 you are not owning part of SCF nor recieving a dividend. You are recieving interest and a promise the loan will be repaid. So this also suggests SCF010 is covered as a debt instrument.

I don't think there is any suggestion that SCF010 is a subordinated debt. Its a secured first ranking fixed rate bond.

So it shoudl be covered??

Technechalities that wil hopefully never have to be questioned.



Agreed - I'm still going to assume the worst when investing ;-)





But heres another for you. If the Guarantee Scheme expires at 12.01am on 12 October 2010 (which according to the Guarantee deed it will) do they mean 1 minute past midnight on the night the 11th and the 12th of October or do they mean 12.01pm - being just after noon on the 12th?

If it says 12:01am then I would say that it is exactly what it is.

That is 1 minute past midnight on the morning of 12 Oct 2010.

Alan.

[minimoke]

If it says 12:01am then I would say that it is exactly what it is.

Which would make it 00.01am. In which case for practical purposes the Guarantee scheme runs out on the 11th of October. Only a rhetorical point - but it may be important to those who are planning on going to the wire. And this may include AH - assuming the bonds are covered up to 12 October he may choose to default up to that date to insure investors get their principal back - if he doesn't then he's effectively throwing those investors to the dogs/gods past 12 Oct.

[Alan3285]

Which would make it 00.01am.



Correct.



In which case for practical purposes the Guarantee scheme runs out on the 11th of October. Only a rhetorical point - but it may be important to those who are planning on going to the wire. And this may include AH - assuming the bonds are covered up to 12 October he may choose to default up to that date to insure investors get their principal back - if he doesn't then he's effectively throwing those investors to the dogs/gods past 12 Oct.

Yes - I suppose you are right, it would seem that any transactions must be completed by close of business on 11 Oct 2010.

If it comes to it, and if I am in the bonds at that point, AND... if I want to get my cash out of the bonds (I have never had any retail deposits with SCF nor will I in the foreseeable future), then I'll aim to have done that by the end of Sep 2010 - I wouldn't want to get tied up in the machinations of the guarantee scheme even if it would eventually pay out. Imagine the hassle and the paper war that would likely ensue if the govt beaurocracy ever gets involved!

Alan.

[Balance]

SCF010 trading at 31% offered.

Hm.. could be worth a punt.

[Romulus]

Hi this is my first post on this thread, but I have looked at GG for SCF and the bonds are covered as long as SCF calls on the existing g'tee before Oct 2010. From an investing point of view you would want SCF to default before October 2010. Somehow it must be resolved before then because if SCF can't repay all debenture holders that have their maturity before Oct 2010, then that would trigger a default and if they can, then they must of resolved their funding issues.

[Alan3285]

SCF010 trading at 31% offered.

Hm.. could be worth a punt.

{Alan nearly falls off his chair}

I'm not so sure - they are in quite a bit of trouble. What if they make it past Oct 2010, then fall over in Nov 2010?

{Grin}


Hey, another thought: Are the RPTs covered by the govt guarantee?

Alan.

[Balance]

{Alan nearly falls off his chair}

I'm not so sure - they are in quite a bit of trouble. What if they make it past Oct 2010, then fall over in Nov 2010?

{Grin}


Hey, another thought: Are the RPTs covered by the govt guarantee?

Alan.

Exactly - that's the judgement call to be made.

[Romulus]

My understanding is because SCFHA are equity they are not covered by GG.

Note the SCF030 that mature on 8 Oct 2010 trading @ 7.6% are covered and if they are covered then any failure triggered under the GG before 8 Oct 2010 will cover all eligble debt (both debentures and bonds on any duration). Logic also would imply this is so because if SCF failed say in June 2010 then SCF030 bonds wouldn't need to wait until 8 Oct 2010 before GG kicks in, hence all bonds kick in under GG along with all debentures of any duration (Before and after 8 Oct 2010) also kick in under the GG cover.

Does that make sense!!

[minimoke]

My understanding is because SCFHA are equity they are not covered by GG.

Note the SCF030 that mature on 8 Oct 2010 trading @ 7.6% are covered and if they are covered then any failure triggered under the GG before 8 Oct 2010 will cover all eligble debt (both debentures and bonds on any duration). Logic also would imply this is so because if SCF failed say in June 2010 then SCF030 bonds wouldn't need to wait until 8 Oct 2010 before GG kicks in, hence all bonds kick in under GG along with all debentures of any duration (Before and after 8 Oct 2010) also kick in under the GG cover.

Does that make sense!!
I'm not so sure. It is the eligible deposits that are guaranteed - not SCF. I think the scenario might be that if SCF goes into recievership (a default event of some magnitude - and one of the "b - f" default events in the Deed)) pre Oct 2010 then the Trustee would say all covered deposits would come under the Guarantee - on the basis that none of them are likely to be paid. This is kind of what happend with Strata Finance but on a much smaller scale.

However if SCF defaults on an interest payment on say SCF 010 then perhaps its only those deposits that trigger the default mechanism and thus the guarantee. (thats an "a" defualt in the Deed). The trustee may look at the SCF020 and say "theres a good chance interest will be paid on those" so the guarantee doesn't apply. If the Trustee gets it wrong and interest isn't paid post Oct 1010 the default provisions apply - but only interest would be guaranteed - not the principal (assuming of course SCF is in the extended Scheme).

Again hypothetical because we haven't had a major insitution fall over. But it does again lead us to conjecture that perhaps Plan Z on SCF's table is to shuffle the deck chairs and call in the recievers pre October 2010.

[Alan3285]

But it does again lead us to conjecture that perhaps Plan Z on SCF's table is to shuffle the deck chairs and call in the recievers pre October 2010.

LOL!

Alan.

[QOH]

It's looking worse by the day, I see some SCF010 going through at 40%. I can't see much point getting out now, I'll just wait and hope. Surely there will be something left for holders eventually

[Alan3285]

It's looking worse by the day, I see some SCF010 going through at 40%. I can't see much point getting out now, I'll just wait and hope. Surely there will be something left for holders eventually

I was just about to post that myself - I am practically drooling!

I'd be very happy to take them off your hands at 40%!

Alan.

[Balance]

Written in May 2008.

http://www.timarudirectory.co.nz/news/2008/05/16/what-makes-allan-hubbard-tick/

[minimoke]

Written in May 2008.

http://www.timarudirectory.co.nz/news/2008/05/16/what-makes-allan-hubbard-tick/
Oh I don't know. I always hold people who stick their middle name intial as part of their signature with a bit of suspicion. Thank fully though the Human Right Commission hasn't caught up on this form of discrimination yet otherwise I would have been locked away long ago.

[Snapper]

Written in May 2008.

http://www.timarudirectory.co.nz/news/2008/05/16/what-makes-allan-hubbard-tick/

What a weird guy (not Allan Hubbard, the writer). He obviously wants to be friends with Allan but Allan won't play ball so he gets his own back in a blog. Sad!

[Romulus]

This is an extract taken from the SCF document that talks about what happens under GG going forward: Title of document first section and then a paragraph extracted from page 7 of this 31 page document-

Main heading: below:

Combined Memorandum of Amendments
to South Canterbury Finance Limited Prospectus No. 60 dated 20 October 2009 (the Registered Prospectus)
effected pursuant to Memoranda of Amendments dated 9 February, 2 and 3 March 2010
EST. 1926
This memorandum sets out all of the amendments that have been made to South Canterbury Finance Limited’s (South Canterbury Finance) Registered Prospectus
since 20 October 2009 and is attached to the Registered Prospectus for the purposes of section 34(1)(a) of the Securities Act 1978.

Extract below from page 7:

In considering the impact of the above events on the Charging Group’s
position going forward, it is important to bear in mind that the Company and
its investors still have the benefit of a guarantee under the Deposit Guarantee
Scheme in respect of first ranking stock or unsecured deposits which mature,
or otherwise become payable on or before 11 October 2010. In addition, on
21 January 2010, the Company applied to participate in the extended Crown
guarantee. If accepted into this extended scheme, the Company will be able
to offer a broad range of investment options to investors. Further details
regarding the terms of the Crown guarantee and the extended scheme are
set out on pages 18 to 19 of this Prospectus and paragraphs 34 to 35 of this

The key seems to be " or otherwise become payable on or before 11 October 2010"

I think would cover all bonds if a event happens before the current GG runs out-any thoughts?

[minimoke]

...
In considering the impact of the above events on the Charging Group’s
position going forward, ..
I always hold statemnts which stick "going forward" as part of a sentence with a bit of suspicion. Why would you use two words when one would do?

But more seriously. Say you have SCF020 and you are paid interst on 15/3/2010, 15/6/2010 and 15/9/2010 what event has occured that would give you the ability to call on the guarantee. SCF have been meeting their obligaitons so what would the problem be? You wouldn't necessarily know until 15/12/2010 when the next interst payment is due.

Say you have SCF030 and SCF don't pay out on 8/10/2010 that is clearly a problem for SCF030 holders and presumably be eligible for the guarantee - but that doesn't necessariy translate into a problem for SCF020 holders on 8/10/2010.

[Romulus]

Good points, but I simply looking at it from the point that if you can't repay any of the debt that is due before Oct 2010, and your debt matures before others then you would demand payment and the whole thing collapses and given that there is a mountain of debt due to mature before Oct 2010, then I'll be very surprised if they could scrap up the funds needed to get them a few more months and then fold to leave others in the cold when at least they could have allowed the later debt to be captured in GG period and have Govt repay, then chase the borrowers for the outstanding loans etc . If they can repay the mountain of debt on time and in full, then there must have been a significant improvement and probably would put the later debt in a better light.

Untested waters but the GG surely must cover all bonds until October 2010 since with all other collapses, as soon a default happens then all debt becomes payable and its just a matter pf priority- could be wrong and have been before- DYOR

[minimoke]

Good points, but I simply looking at it from the point that if you can't repay any of the debt that is due before Oct 2010, and your debt matures before others then you would demand payment
Perhaps you're assuming that if you can't pay a partcular part of debt (apart from teh fact the pre Oct 2010 is a very large debt) then you can't pay ALL of your debt. I don't think the SCF010 and 020's can demand early repayment can they?

What if you are negotiating with someone who really likes copters and apples and that person reckons SCF looks pretty good - except for the SCF030's. As a negotiator you might say - look I'll come to your aid after October 2010 becauses we know the govt will look after the pre Oct defaults you incur (say the SCF030's) but we quite like the look of the situation after that debt is paid by the Guarantee. We'll therefore give you enough loot to meet your 010 and 020 interest obligations (so they don't go into default) and let the punters carry their own risk on the principal.

As you say DYOR - perhasp there is no answer until 12 October or some pre event. I'm sure Treasury are "running a ruler" over the fine print and probably "running some ideas up the flagpole" - but punters might need to prepare to "build a bridge and get over it"

[POSSUM THE CAT]

Question are Bonds considered A deposit or a capital item. In most balance sheets i have seen Bonds are capital. (but I am no Finacial whizz) Banks issue bonds to increase there capital as it is more efficient than issuing shares. So to my mind these bonds are capital and not a deposit so not coverd by Govt. guarantee.

[Balance]

Just read the article by Bruce McKay in the Dominion Post.

What a shocker!

The numbers look accurate - means SCF has to find $400m of new capital before it can qualify for the extended government scheme!

Either that or SCF has to sell a lot of assets.

[minimoke]

Just read the article by Bruce McKay in the Dominion Post.

What a shocker!

The numbers look accurate - means SCF has to find $400m of new capital before it can qualify for the extended government scheme!

Either that or SCF has to sell a lot of assets.
Heres a copy of the Article from the Press - I think its the same one

[minimoke]

And heres the table

[Enumerate]

Syndicated version of the article:

http://findarticles.com/p/news-articles/press-the-christchurch-new-zealand/mi_8033/is_20100310/capital-adequacy-rules-tough-risk/ai_n52405069/

[Snoopy]

And heres the table


Something strikes me as not quite right in this analysis. Scales was the holding company for Alan Hubbard's farming interests was it not (I guess it still is if Hubbard retains a 20% stake)? So why is land in the form of these farms given a 600% risk factor when money leant against other peoples farms under 'property' given a 350% risk rating?

All SCF has to do to greatly decrease risk 'on paper' is to paper shuffle these Scales farms out of corporate ownership and into direct ownership, with Hubbard himself as a 20% partner. That would be $400m odd off the 'risk rating of assets' at the stroke of a pen by doing, in effect, nothing.

I am not sure when the valuation on these farms were done for SCF balance sheet purposes. But a quick glance at one of the business papers this week revealed an article quoting PGGW Real Estate on farm values. The gist of the article was that South Island farmers had already taken the correction of Dairy Farm property values from their peak (down 20-30%) whereas North Island farmers had yet to take their medicine. I don't know what proportion of SCF lending was made to South Island farms verses North. But I'm picking that most of the lending would be on South Island farms. That means there may not be any more 'valuation skeletons' in SCF's closet.

Also should not the cash assets and government stock , rather than be given a 'zero to low rating', be used to directly offset preference share debt for the purposes of this capital adequacy calculation?

For these reason I would say Bruce McKay's table is probably unnecessarily pessimistic. Yet if SCF is indeed about to sell off some stuff durinng a forced sale cheaply, perhaps it is time to keep some capital aside and await a float?

This all seems so obvious, I feel as though I must have missed something? Have I?

SNOOPY

[Enumerate]

The other dimension of this capital guarantee is that even if SCF preserve BB counterparty risk - the guarantee premium is 1.5%!! They would have to be AAA to make the guarantee margin affordable.

I would suggest that SCF release two generations of secured debentures - one with the gov't guarantee and one without - the difference being the 1.5% interest margin subtracted from the former but paid to the punter in the latter. It would be fascinating to see how NZ fixed interest investors voted with their capital.

I see that the wholesale guarantee will lapse in April. Dealing retail with NZ finance companies, you are "government guaranteed" (or at least some of them) - dealing wholesale with NZ banks, no guarantee.

The retail version should never have been enacted. It guaranteed stupid risks with tax dollars and it is now damaging the finance sector recovery.

Another fabulous policy misstep from the mandarins in Treasury!

[Balance]

Almost inevitable that SCF's perpetual pref share holders are going to have t accept a restructuring of their pref shares into ordinary shares as part of a major capital restructuring.

NBR carried an article which showed that Hubbard's Southbury got $16.5m round robin payment from SCF (in addition to the $10m) from the Helicopter and Scales 'capital' injection. Not disclosed as it was considered immaterial! The spin continues with this company which has yet to learn that it is best to be frank & transparent.

[percy]

snoopy
I think farming interests are elsewhere. scales used to hold coolstores,shipping and apple interests, but been a few years since I held.

[Snapper]

http://www.stuff.co.nz/business/industries/banking-finance/3448351/SCF-may-rescue-Strategic

SCF a white knight for Strategic? Don't think so. Frying pan to the fire for Strategic debenture holders and why would SCF want to take on more property development loans? What some may see as an equity injection others might see as just another load of old rope...

[Balance]

http://www.stuff.co.nz/business/industries/banking-finance/3448351/SCF-may-rescue-Strategic

SCF a white knight for Strategic? Don't think so. Frying pan to the fire for Strategic debenture holders and why would SCF want to take on more property development loans? What some may see as an equity injection others might see as just another load of old rope...

Exactly. SCF cannot get its own house in order, let alone be white knight for Strategic! After Allied Farmers/Hanover, most trustees ad investors can see the folly of converting debt into equity.

Chris Lee clutching at straws now that SCF could very well muddle on through to Nov 2010, and then have the plug pulled if it cannot get its equity injection.

[minimoke]

Chris Lee clutching at straws
What on earth is Chris Lee thinking. Surely SFC have enough problems of their own which need urgent and detailed attention. Why would they want someone elses problems on top of their own at this stage of their life cycle.

[Morpheus]

What on earth is Chris Lee thinking. Surely SFC have enough problems of their own which need urgent and detailed attention. Why would they want someone elses problems on top of their own at this stage of their life cycle.

Perhaps the answer lies in the motive. Perhaps Mr Lee is worried about what the receivers find beneath Strategic? Perhaps he wishes for a takeover so that slate is cleaned. Perhaps Mr Lee is concerned about his reputation?

[Enumerate]

http://www.stuff.co.nz/business/industries/banking-finance/3448351/SCF-may-rescue-Strategic


Why doesn't Chris Lee simply keep his mouth shut?

Like Don Quixote, he is off tilting at windmills - reorganising large mounds of decaying property loans and the debentures which funded them.

Under the retail guarantee scheme ... it will be the government who collects together all these moldering debentures - paying them out at face - and being left with the massive insolvency task of sorting our all the mare's nest of decomposing assets.

The private sector is not interested. Those remaining financial sector organisations do not need massive equity injections in the form of dead loans. The ALF lesson is that this type of deal simply destroys the reputation and integrity of the entity taking over the loans.

If SCF moves on Strategic it is because they imagine their choice to be either "falling together" or "falling over" as separate organisations. (a la Trans Tasman Properties - Robert Jones Investments and Seabil).

[Dr_Who]

http://www.stuff.co.nz/business/industries/banking-finance/3448351/SCF-may-rescue-Strategic

SCF a white knight for Strategic? Don't think so. Frying pan to the fire for Strategic debenture holders and why would SCF want to take on more property development loans? What some may see as an equity injection others might see as just another load of old rope...

You can smell the desperation.

[Snoopy]

snoopy
I think farming interests are elsewhere. scales used to hold coolstores,shipping and apple interests, but been a few years since I held.


You may be right Percy. I am an interested observer rather than a holder myself. So I would be interested if others know how the Hubbard dairy farm interests are tied into South Canterbury Finance now. I am just assuming they are because of the 'forum/blog baying' that seems to indicate that Hubbard has done everything he can to help out SCF, the implication being that the 'Hubbard cupboard' is now bare.

SNOOPY

[winner69]

SCF bailing out Strategic

Echo's of 2006 from this post back then by lambton

I wouldn't rely on Mr Hubbard to save the poor old Provincial investors. He will cherry pick alright but at his price which won't be $ for $. As for investment advisors huffing and puffing saying they're going to rescue the coy from the arms of the receiver. Give me a break. This is grand standing - merely keeps angry investors at bay for now. Ha wont be long before investors are baying for blood. I wouldn't be one of the many investment advisors(and there were heaps sucking from the Provincial tit as far as I can make out - CL included) for all the tea in china. After all if they were doing their job properly and did better screening in the first place, lacking investor support from the advisor community, Provincial would not have grown as fast and large as it did.

Sad really ... 4 years on and things aint changed ... even then SCF was mentioned a lot on 'So Which Finance Company is Next" thread

[Lizard]

Strategic looks even sadder when considering that Provincial investors managed to recover 92.5c in the $ (from memory). Though no one's laughing, it is kind of ironic.

[Balance]

Perhaps the answer lies in the motive. Perhaps Mr Lee is worried about what the receivers find beneath Strategic? Perhaps he wishes for a takeover so that slate is cleaned. Perhaps Mr Lee is concerned about his reputation?

Dumbest most stupid desperate and self-serving idea ever floated - SCF absorbing Strategic. The fleas will simply have a bit more room to jump about.

[westerly]

Balance post 557 3/3/10

"If Strategic investors are prepared to swap debt for SCF's equity it will be a good deal for both"
A bet each way?

Westerly

[Balance]

Balance post 557 3/3/10

"If Strategic investors are prepared to swap debt for SCF's equity it will be a good deal for both"
A bet each way?

Westerly

Events since then have shown SCF's position to be a lot worse than expected. Specifically, SCF's ability to get the extended govt guarantee is now seriously in doubt - refer Bruce McKay's article.

Getting Strategic investors to swap into SCF's equity would definitely be very good for SCF - not so for Strategic.

[winner69]

Jeez Alan .... you get those million plus SCF010 yesterday at 37 .... well done

Big spike in volume ... you had to wait for that many and you jumped in eh ?

Or was it Balance?

[Alan3285]

Jeez Alan .... you get those million plus SCF010 yesterday at 37 .... well done

Big spike in volume ... you had to wait for that many and you jumped in eh ?

Or was it Balance?


{Very Big Grin}

[Balance]

{Very Big Grin}

Not me, matey.

Something smells.

[winner69]

A mill plus at 37 not a trader taking a quick profit

Was it somebody prepared to take a half mill hit just to get out before they are worthless

Or just a distressed seller urgently needing some cash

Jeez they will pissed off if the Govt comes out today and says they will quarantee SCF to the hilt because they are too big to fail

[minimoke]

Was it somebody prepared to take a half mill hit just to get out before they are worthless

Perhaps they reckon half of somthing is better than 100% of nothing.

[CJ]

Jeez they will pissed off if the Govt comes out today and says they will quarantee SCF to the hilt because they are too big to failAs a taxpayer (and not an investor), I will be pissed of too.

[Balance]

As a taxpayer (and not an investor), I will be pissed of too.

Cannot see it happening.

Check out Bruce McKay's article re capital adequacy & SCF's requirement to reduce related party transactions to 15%of SHF (it's now over 100% of SHF).

Someone selling out $1m worth is no mug. Something smells.

[winner69]

Chris Lee wants Strategic punters to write to Alan Hubbard pleading for SCF to take over the Strategic assets

http://www.chrislee.co.nz/index.php?page=taking-stock

The best deal I can imagine would be one from South Canterbury Finance he says

[winner69]

PGC must be embarrased at owning such an outfir as Perpetual Trust

Strategic / Chris Lee / Perpetual Trust / Torchlight / PGC / SCF all one big incesteuous family

Methinks Balance on to it ......... PGC will screw SCF for all its worth .... and leave a carcass of sorts for SCF investor to fight over

But I will be mightlly pissed if government has to bail out any group of investors

[minimoke]

The best deal I can imagine would be one from South Canterbury Finance he says
So if John Fisk of PWC thinks PWC can survie he ought to do a deal with SCF. Can we take it from that then that if a deal isn't done John Fisk doesn't think SCF can/will survive. I'm not so sure its entitely appropriate for CL to suggest that PWC are only in the recievership game to extend the life of a doomed company simply to rake in fees over the years - or perhaps there is an element of truth there!.

[mouse]

Cannot see it happening.

Check out Bruce McKay's article re capital adequacy & SCF's requirement to reduce related party transactions to 15%of SHF (it's now over 100% of SHF).

Someone selling out $1m worth is no mug. Something smells.

I cannot understand why SCF has not replied to McKay's article. Why? The article is totally damning for SCF. Or have they replied and I missed it?

[Balance]

I cannot understand why SCF has not replied to McKay's article. Why? The article is totally damning for SCF. Or have they replied and I missed it?

No reply because it's true?

Bruce is with Viaduct Capital which faled to get as govt g'ttee. He knows the score.

[Balance]

What on earth is Chris Lee thinking. Surely SFC have enough problems of their own which need urgent and detailed attention. Why would they want someone elses problems on top of their own at this stage of their life cycle.

Now we know why Chris Lee is panicking. Fancy rating Strategic an 'A-' two months before the company defaulted.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10633708


"Crone, who invested thousands with Strategic, fretted just before it got into trouble about renewing a big investment. But advice from staff at Chris Lee Sharebroking of Marine Parade at Paraparaumu Beach convinced him to renew, resulting in a big financial loss and poor prospects of getting his money back.

Chris Lee, the managing director, wrote to Crone six months before it went into moratorium, saying Strategic "remains one of our preferred providers and their rates are competitive given the reinvestment bonus offered. We rate Strategic as an A-. Strategic has a very high liquidity, an investment grade rating, low bad debts and is well-placed to withstand the difficult conditions in financial markets," Lee wrote on June 13, 2008, in a letter signed by Edward Lee.

Strategic defaulted on August 7, 2008."

Well, those follow Chris Lee's advice on SCF have only themselves to blame if SCF blows up.

[Alan3285]

Letter from Allan Hubbard as Chairman of SCF to Investors - 23 Mar 2010 (http://research.iress.com.au/ids/current/NZCR/20100323/NZSE0000-116406.pdf?uid=BCF6B88F17D562570697BFE652DC88D5CE1 B000051E422CC8AA8E340F1AB0000F4120000&ppv=):




Monday, 22 March 2010

Throughout this period, South Canterbury Finance has
continued to provide attractive returns for investors and
without fail has always repaid funds when due on maturity. In
return, the Company has been rewarded with the confidence
of you and 40,000 others who have remained steadfast
supporters. Your loyalty is humbling and has contributed to
the success of the Company over its 84 years history.

I want to assure you that the Company is soundly based and
well positioned to meet the challenges ahead. Recently,
Southbury Corporation, which is indirectly controlled by me
and my wife Jean, announced it had injected new equity
into South Canterbury Finance totalling $152.5 million. This
followed several other measures in recent months including
the appointment of new independent directors, and new
senior management with the skills to meet the demands of
the changed environment.

The capital injection was achieved when Southbury
Corporation sold its 100 per cent shareholding in Helicopters
(NZ) Limited and 64 per cent of the shares of Scales
Corporation Limited to South Canterbury Finance.
Helicopters (NZ) and Scales Corporation are substantial and
profitable companies with which I have had a long and
personal association. In the year ended 30 June 2009 the
combined results for Helicopters (NZ) and Scales Corporation
returned a net profit after tax of $29.8 million. The earnings
contributions of these two successful companies are now
part of South Canterbury Finance and substantially change
the earnings profile for the benefit of all stakeholders.

As might be expected, the Government and the Reserve
Bank of New Zealand are introducing new regulatory
requirements for the finance sector. In addition, an Extended
Retail Deposit Guarantee scheme has been introduced
to replace the existing Retail Deposit Guarantee scheme
which expires on 12 October 2010. The Company meets the
eligibility criteria for participation in the Extended Retail
Deposit Guarantee scheme and believes that it has taken
all the steps necessary to be accepted into the scheme. If it
is accepted, investors will have the benefit of the Extended
Guarantee from 12 October 2010 through to 31 December
2011, when the scheme expires.

A decision from Treasury on our application for participation
in the Extended Retail Deposit Guarantee scheme is expected
shortly. Regardless, all eligible existing, and new, depositors
and investors continue to have the benefit of the current
Retail Deposit Guarantee scheme through to 12 October 2010.

In a further development, Sandy Maier was appointed Chief
Executive Officer in late December 2009 and together with his
new senior management team has made significant progress
with the restructuring of the Group’s financial affairs and
overseeing of the Company’s loan book. Sandy brings to the
Company 35 years experience in corporate restructuring and
has quickly forged a strong working relationship with the
Board and company staff.

I acknowledge that the recent financial performance of the
Company has been disappointing and this has adversely
affected investor confidence but I remain totally committed
to ensuring a successful future for South Canterbury Finance.

I am satisfied that we are well on the way to a totally
fresh approach to the future and the restoration of South
Canterbury Finance as a leader in the sector. This may require
the raising of further capital by the Company and possible
sale of non-core assets to ensure compliance with the new
regulatory environment.

Once again, thank you for your ongoing support. We will
continue to keep you informed on our progress as new
information becomes available.

Yours Sincerely

Allan Hubbard
Chairman

[winner69]

Alan3285 .... did you write that for your namesake ... or are you really Alan LOL

[Alan3285]

Alan3285 .... did you write that for your namesake ... or are you really Alan LOL

I am really Alan - honestly.

Alan.

[QOH]

Well did that letter reassure anyone, or are they just rearranging the deck chairs on the Titanic?

[minimoke]

Well did that letter reassure anyone, or are they just rearranging the deck chairs on the Titanic?
My first thought was "Why" - why has Alan written this (and I haven't an answer on this yet). Next is "So whats new? Third thought was "Jeez if you are an investor and you didn't know this already then what do I make of you"? Essentially its a mildly interesting but totally irrelevant letter.

[Alan3285]

Straw Poll:

Should the treasury allow SCF into the extended guarantee scheme?

1) No - If you go for this option, then it seems possible that the treasury will have to stump up between $1,500m and $2,000m to cover a possible default come Oct 2010


2) Yes - Which exposes the treasury to the (lesser, but still significant) possibilty of having to pay out in 2012 if SCF cannot recapitalise over the intervening 18 months and (presumably) they could increase the liabilities further.


Which is the lesser evil?

Alan.

[minimoke]

Straw Poll:

Should the treasury allow SCF into the extended guarantee scheme?

1) No - If you go for this option, then it seems possible that the treasury will have to stump up between $1,500m and $2,000m to cover a possible default come Oct 2010


2) Yes - Which exposes the treasury to the (lesser, but still significant) possibilty of having to pay out in 2012 if SCF cannot recapitalise over the intervening 18 months and (presumably) they could increase the liabilities further.


Which is the lesser evil?

Alan.
Before answering what I would like to know is how much has treasury colleced in Deposit Scheme Fees. With around 90 company schemes paying fees of between 0.1 and 1% on $125b of deposits perhaps treasury has collected enough to pay out SCF with no hit or payout without a substantial hit. They may take that hit and then figure it can be offset by SCF assets (Helicpoters and Scales) so may not be out of pocket at all.

But if you want a quick answer I go with: (1)

There are criteria for entering the new scheme and one of them is "Are there any material changes"?. Well yes there are. SCF is no longer a finance company its a compnay with interests in finance, helicopters, apples and cools stores.

And Helicopters and Scales add an extra complexity. They may get the extended guarantee with these assets but if they then sell them that coudl cause teh guarantee to be withdrawn.

So my sraw poll is will AH pull the plug before 11 Oct 2010?

[winner69]

1)

Should never have been a guarantee scheme in the first place

[Alan3285]

I totally agree the scheme should never have been put in place to start with - if any business is going to fail, let it fail, and the investors must take responsibility for their own actions (or their own decisions to trust someone else without doing the primary research themselves).

However, it is in place, and we can't change that.

Personally, I am finding myself, ironically, going for (2) since at least there is a chance that treasury will never have to pay anything out. I see no reason why treasury cannot attach conditions to the extension, such as having to sell of non-core assets with in the next 18 months, or raise capital or whatever - they can always say its either that, or be declined.

Not putting them into the extension pretty much guarantees that we (taxpayers) are on the hook, and it makes no difference what the level of premiums collected are (that is all history) - it matters only what it would cost us from the point the guarantee was triggered since the premium income is already ours (taxpayers).

On the other side, if SCF was refused the extension and treasury paid out, presumably it would then have the next few years to get what it could back from the SCF carcass - it might get everything back anyway if they are patient enough?

Alan.

[minimoke]

And whiel we are on teh subject of Deposit Guarantees; what impact will todays news have on the Guarantee. Can SCf split teh "good" from teh "bad" and still expect to be covered by teh guaranteee scheme As a tax payer I woudl have concerne that they avoid putting hte "good" assets back in teh pot in teh event of a default.

"South Canterbury Finance is looking at the option of splitting into a "good company" and a "bad company" to meet Reserve Bank regulations coming in force later this year.

The troubled finance firm also expects investor George Kerr to be part of its future. Mr Kerr is a 14 per cent shareholder in Pyne Gould Corporation and a director and has said PGC's fund for distressed assets, Torchlight, would be interested in buying some SCF loans.


SCF's new chief executive, Sandy Maier, said separating out troublesome assets from healthy ones was a conventional tool for "troubled" financial institutions worldwide.


Many commentators were assuming SCF was desperate to raise capital "but that's not necessarily how we see it," Mr Maier said yesterday.


Asked why chairman Allan Hubbard was saying SCF "may" raise more capital and the sale of non-core assets was "possible" when commentators considered there was little choice, Mr Maier said: "Depending on the configuration of the business going forward ... we may or may not need new capital." SCF had raised capital twice in the past three months and it would probably do so again.


"But strictly speaking, there are ways and means to go forward without new capital. It depends on the configuration of what's in the finance company and how we might legally separate it," Mr Maier said. There was enough capital for a small finance company that was purged of its problem assets.


SCF is trying to sell a parcel of about $300 million of property loans.


"If you look at the size of the place, we have got enough perfectly good assets, just that piece of the business alone, we would still be one of the largest finance companies in the sector.


"I've got enough assets that I'd like to quit and sell and that section of the business is bigger than most of the other finance companies ever were, and I've got enough investment assets in a pile that are bigger than most of the other finance companies ever were. It's a big beast." With regard to rumours Mr Kerr was going to buy SCF assets, Mr Maier said Mr Kerr had supported the company but there was no deal on the table for the $300m of loans.


Mr Maier said it was likely that by restructuring the business, perhaps raising some capital and selling assets, SCF would "seek to get the relevant piece of the organisation into a compliant stage" to meet the new Reserve Bank regulations that relate to liquidity, related party transactions and capital ratios."

[Alan3285]

Article on Stuff:

Troubled South Canterbury Finance considers separating assets (http://www.stuff.co.nz/business/3498012/Troubled-South-Canterbury-Finance-considers-separating-assets)

Now that'll be interesting for existing bond and pref share holders.

I guess its possible each security could be split and you end up with investments in the 'good', and the 'bad and ugly', or perhaps the bad is all financed privately (big risk, bit potential rewards) and the good keeps the public listing?

Alan.

[POSSUM THE CAT]

My Vote Is the sooner they shut it down the better

[Alan3285]

SCF to receive additional $22m of capital from Torchlight via Southbury:

Voxy.co.nz: Additional Equity For South Canterbury Finance (http://www.voxy.co.nz/business/additional-equity-south-canterbury-finance/5/43743)


I'm not familar with Voxy, but I assume it is correct even though I can't see it on the NZX site at this point.

If so, quite a vote of confidence from Torchlight, since I would think that these funds would stand at the end of the queue if anything goes wrong?

Not sure that I would be willing to do the same.

Alan.

[winner69]

Balance will work it out but probably pretty well up the chain insofar as security goes i would guess

The previous deal direct with SCF is almost a can't loss deal

Interesting that the deal had to be done through Southbury so they can inject cash into SCF ... prob Torchlight didn't want equity in SCF (that being too far down the food chain) bu SCF desperate for true equity (not sone fandangked de facto capital)

Hope nobody ever has to unwind all this

[Alan3285]

Hi Winner,


Balance will work it out but probably pretty well up the chain insofar as security goes i would guess

The previous deal direct with SCF is almost a can't loss deal

Interesting that the deal had to be done through Southbury so they can inject cash into SCF ... prob Torchlight didn't want equity in SCF (that being too far down the food chain) bu SCF desperate for true equity (not sone fandangked de facto capital)

Hope nobody ever has to unwind all this


I will be interested to see how 'Balance' comes up with an explanation that the new shares in SCF are anything but at the end of the chain with the rest of Southbury's shares.

As far as I can see, this is Allan Hubbard putting more of his personal wealth on the line to protect investors in SCF. Given he is relatively asset rich, but probably cash poor right now, it appears he is borrowing against those assets and putting it into SCF to the benefit of others.


Alan.

[winner69]

Yep ... Southbury's new shares in SCF will be at the end of the line .... but Torchlight investment in Southbury will probably be top of the list in that entity .... which assumes there is still something left in Southbury.

Torchlight has not injected anything directly into SCF this time around have they?

[Alan3285]

Yep ... Southbury's new shares in SCF will be at the end of the line .... but Torchlight investment in Southbury will probably be top of the list in that entity .... which assumes there is still something left in Southbury.

If there is nothing left in Southbury, that is of no concern to anyone other than Allan Hubbard?

It doesn't make a dot of difference to investors in SCF does it?


Absolutely worst case, this is a zero sum game for investors in SCF. If Torchlight received the cash from SCF (repayment of a facility), put it into Southbury, and there into SCF as equity, then the net effect would be to replace a high ranking creditor with a bottom ranking creditor and zero cash flow. Even then, it is still only positive for the other creditors isn't it?

Alan.

Alan.

[winner69]

Read the comments at the end of this article .... summrised - all this is jiggery pokery by somebody born with a golden spoon in his mouth fronting for Fortress .... and this transaction to cover up another $29m of SCF losses .... and its all going to end in tears

Now you don't need to read to the comments

http://www.nbr.co.nz/article/south-canterbury-finance-gets-new-equity-torchlight-120901

[Alan3285]

Read the comments at the end of this article .... summrised - all this is jiggery pokery by somebody born with a golden spoon in his mouth fronting for Fortress .... and this transaction to cover up another $29m of SCF losses .... and its all going to end in tears

Now you don't need to read to the comments

http://www.nbr.co.nz/article/south-canterbury-finance-gets-new-equity-torchlight-120901


Presumably you read the comments - they might have more now of course.

I would expect a better level of analysis and discourse from NBR readers, but perhaps I expect too much.

Few of them add anything to the discussion (but then that is often true here of course).

I'll still be interested to see how, upon analysis, this Torchlight / Southbury deal that ends up with an additional $22m equity in SCF is negative for debenture / bond holders in SCF.

Whether there are additional losses is entirely another issue of course.

Alan.

[winner69]

Alan ... I have only responded to your statement ' ...I would think that these funds (Torchlights) would stand at the end of the queue if anything goes wrong?'

Torchlight will be head of the queue at Southbury for this $20 million odd aren't they? The smoke and mirrors is that Torchlight hasn't put any equity into SCF - Southbury has .... unless Torchlight now controls Southbury which would be interesting eh

You are correct that SCF investors will rank ahead of Southbury for this $20 mill so are in a btter position than yesterday

[winner69]

Those NBR comments are heating up a bit .... accusations of the supporters being SCF employees and one guy going to sue another

[minimoke]

So with the $75m loan facility and new $22m thats Torchlight with a bit of skin in the game. They clearly have plans and in the meantime SCF appears to be doing what it can to present a set of accounts that meet a variety of interests requirements. It probably had to take the money from Torchlight since their prospectus expired on Wednsday and doesn't look like it will be up again until the Auditors have signed it off. And is it $300m they still need?

[Alan3285]

Hi Winner,


Alan ... I have only responded to your statement ' ...I would think that these funds (Torchlights) would stand at the end of the queue if anything goes wrong?'

Torchlight will be head of the queue at Southbury for this $20 million odd aren't they? The smoke and mirrors is that Torchlight hasn't put any equity into SCF - Southbury has .... unless Torchlight now controls Southbury which would be interesting eh

You are correct that SCF investors will rank ahead of Southbury for this $20 mill so are in a btter position than yesterday


Sorry for confusing things!

I agree - Torchlight might rank top inside Southbury (I have no idea what the situation is in there), but in SCF the equity injection is all positive for other investors (debenture, bond, and preference share holders).


Alan.

[Alan3285]

Those NBR comments are heating up a bit .... accusations of the supporters being SCF employees and one guy going to sue another

Maybe it is my PC, but now all the comments are gone (and turned off).

Perhaps things got too interesting for the NBR!

Alan.

[winner69]

Maybe it is my PC, but now all the comments are gone (and turned off).

Perhaps things got too interesting for the NBR!

Alan.

Yep ... all gone Alan .... never to be seen again ....... just like Long Strangles posts on Sharetrader

[winner69]

Just as well Easter falls when it does this year .... gives then a few extra days to get their interim report completed .... surely they will have it completed by next Friday .... surely they wouldn't let the NZX suspend trading

[Alan3285]

Announcement today:

interest.co.nz (http://www.interest.co.nz/ratesblog/index.php/2010/04/01/south-canterbury-finance-wins-extended-government-guarantee/)

Looks like they'll be around for a while longer ;-)

Perhaps that why the didn't rush out a new prospectus.

Alan.

[Lizard]

Can anyone confirm if the interest payment went through on the SCFHA (and wasn't immediately reversed)?

[Balance]

Link from NBR :

http://www.lostsoulblog.com/2010/04/rubbing-gloss-of-another-south.html

So, looks like more debt rather than real equity.

But good news for SCF RETAIL depositors re extended government guarantee.

[Balance]

Announcement today:

interest.co.nz (http://www.interest.co.nz/ratesblog/index.php/2010/04/01/south-canterbury-finance-wins-extended-government-guarantee/)

Looks like they'll be around for a while longer ;-)

Perhaps that why the didn't rush out a new prospectus.

Alan.

Looks like it.

Treasury certainly did not want to trumpet the extension, did they? Releasing the news late on the eve of a major 4 day holiday to ensure minimal media coverage and serious scrutiny - so typical of governments and companies trying to hide bad news.

So what's the bad news ......

[Lizard]

Can anyone confirm if the interest payment went through on the SCFHA (and wasn't immediately reversed)?

I ask this because I hold a few prefs - interest goes to an account for which I haven't bothered to set up internet banking. There are too many 31 March transactions on the ATM mini-statement to be sure, but looks like the payment of interest on the prefs was reversed back out.

[Alan3285]

... good news for SCF RETAIL depositors re extended government guarantee.

I don't understand your emphasis on the word 'RETAIL'.

Which depositors in SCF is it bad news for?


Alan.

[Balance]

I don't understand your emphasis on the word 'RETAIL'.

Which depositors in SCF is it bad news for?


Alan.

There are many depositors (eg. institutions, off shore investors, trusts etc) in SCF who do not qualify for the guarantee.

It will be an issue for SCF as they are not going to be able to take a sigh of relief but they are highly unlikely to take the risk and reinvest with SCF.

Remember that eligible depositors will now be guaranteed as well to only $250,000.

So reinvestment profile for SCF does not look fantastic.

[Alan3285]

There are many depositors (eg. institutions, off shore investors, trusts etc) in SCF who do not qualify for the guarantee.

It will be an issue for SCF as they are not going to be able to take a sigh of relief but they are highly unlikely to take the risk and reinvest with SCF.

Remember that eligible depositors will now be guaranteed as well to only $250,000.

So reinvestment profile for SCF does not look fantastic.


Hi Balance,

I must be slow here.

Which investors in SCF are you saying the extended retail guarantee bad for?

I can't see how any other investors in SCF are actually disadvantaged.

Thanks,

Alan.

[Lizard]

Can anyone confirm if the interest payment went through on the SCFHA (and wasn't immediately reversed)?

Thanks to the person who PM'd me - apparently double-paid and once reversed.

[westerly]

Looks like it.

Treasury certainly did not want to trumpet the extension, did they? Releasing the news late on the eve of a major 4 day holiday to ensure minimal media coverage and serious scrutiny - so typical of governments and companies trying to hide bad news.

So what's the bad news ......

Given the interest rates available on SCF traded securities notifying the extension when the market is closed seems reasonable to me. It seems it's always doom and gloom with Balance !

Westerly

[Enumerate]

The current Non-Bank Retail deposit guarantee (NBRDG) scheme expires in October 12, 2010. SCF have been awarded an extension of the scheme to 31 December 2011.

The current profile of listed debt is:
SCF 00/00/00 5.61% Sth Canterbury Finance Prefernce Shares (SCFHA)
SCF 15/12/12 10.43% South Canterbury Finance Limited (SCF010)
SCF 15/06/11 10.50% South Canterbury Finance Limited (SCF020)
SCF 08/10/10 08.00% South Canterbury Finance Limited (SCF030)

So, the latest announcement covers the full term of the SCF020's, now - as the old scheme covered the full term of the SCF030's. All the SCF0x0 instruments are covered if the default event occurs, now, before 31 December 2011. The deeply subordinated SCFHA's are not subject to the guarantee.

How does the extension assist SCF in it's recapitalisation. Fact of the matter is, IT DOES NOT HELP, AT ALL. There are two reasons for this:

1) Roll over of any of the SCF0x0 debentures will only be covered, partially, by the NBRDG term. The existing guarantees will expire before any of the roll over money is likely to be due.

2) The guarantee is expensive - a 1.5% margin - at the lowest acceptable credit rating.

SCF's problem is equity capitalisation and short term current liabilities from the large retail deposits. The extension does nothing to solve either of these problems. In fact, it makes margin from the retail deposits lower, at a critical time, than would normally be the case.

This leads to the issue, of really what the SCFHA and SCF0x0 series are worth.

The only conclusion that can be rationally supported is that the value is completely unknown. The reasons for this are:

1) In a "near term" receivership ... the SCF0x0 holders would be completely reliant on the NBRDG scheme for a recovery. SCFHA holders would be wiped out. The basic reason for this is that it is highly likely that recent "capitalisation" initiatives are either neutral for debenture debt holders (equity introduced to offset losses) or probably negative (some of the Kerr money may be senior to debenture holders). We don't know because we don't have appropriate accounts. We certainly cannot rely on the NZX or the Securities Commission to seek clarifications on debenture holder behalf - it seems the Trustee is also asleep at the wheel.

2) A "recapitalisation" would change everything. It is unlikely that what we have seen, to date, is in any material sense a "recapitalisation". The disclosure required in terms of public participation in a recapitalisation should give some measure of comfort to debenture holders that a rational decision would be possible on default and recovery risk.

3) A failure to recapitalise simply means that SCF is inherently unstable leading to a probable failure. The difficulties in securing long term borrowings and the reduced margin on existing borrowings means that no further issues or difficulties could be "absorbed" by the existing balance sheet. The capital adequacy guidelines mean that there is a likely "day of reckoning" - the "ticking time bomb".

4) The Chris Lee "recapitalisation" scenarios (buying the Strategic loan book for equity, for example) are fraught with moral hazard. How could a functioning regulator allow the purchase of an asset of unknown value with another asset of unknown value. ALF/Hanover was a shameful development whose sole consequence is to make a mockery of investment in the NZ finance sector as no better than a "punt on the horses".

One final observation.

NZF has negligible related party loans, no vast wasteland of toxic property developer debt, is mainly reliant on bank funding of a loan book that is largely first mortgages that do not involve capitalisation of loan interest and the company has the support of some wealthy backers who clearly appreciate the recent declared profit ... the NZF010's can be bought for 85% interest. The SCF0x0's are infinitely worse and yet are priced at near par value. Who says the market is efficient ... or even rational.

[Jaa]

NZF has negligible related party loans, no vast wasteland of toxic property developer debt, is mainly reliant on bank funding of a loan book that is largely first mortgages that do not involve capitalisation of loan interest and the company has the support of some wealthy backers who clearly appreciate the recent declared profit ... the NZF010's can be bought for 85% interest. The SCF0x0's are infinitely worse and yet are priced at near par value. Who says the market is efficient ... or even rational.

Arne't NZF010 convertible to normal shares at NZF's discretion in 2011 though? So not really comparable with SCF0x0s which are just straight bonds?

[winner69]

This guy reckons even with the $22m new capital total equity remains unchanged from a month ago _ ie they have incurred more losses .... and he reckons that the new money has ' ..... effectively super-senior claims on SCF assets'

So maybe current investors are no better off with this deal

So much mystery .... so much fiddle faddle .... no wonder there is so much conjecture .... they bring it upon themselves


http://www.lostsoulblog.com/

[Dr_Who]

Why is DH so desperate to save SCF? Is he sincere in his attempts to save it or does he (like others) have something to hide and do not want forensic accountants to go through the books?

[Enumerate]

Arne't NZF010 convertible to normal shares at NZF's discretion in 2011 though? So not really comparable with SCF0x0s which are just straight bonds?

Yes, this is true - that is why they are Capital Notes instead of debentures. The value of conversion is by a typical 95% VWAP of the 20 days prior to maturity date. Maturity date is 15/03/2011.

Remember, current market capitalisation of NZF is about $15million. There are over $20million of NZF Capital Notes.

My current view is that:

1) if the companies situation were to remain the same as the current situation - they would find roll over or repayment a better option compared with replacing current dominant shareholders with capital noteholders. They are profitable at existing levels of debt - they need to increase capitalisation well before the maturity of the capital notes.

2) if the company were to get into trouble ... this is the classic death spiral situation - in which capital noteholders become the new owners and existing holders would be wiped out.

[Jaa]

A full 2.9m SCF020 bonds traded today, 3% of the total on issue - that has to be some kind of record!

Been interesting watching the trading of SCF020 versus SCF030 this week. Has taken a full 3 days for the yields to come into line. As you can benefit from SCF020 for longer than SCF030 I would expect its yield to actually be lower once things have settled down. Any guesses for where it will eventually settle? 7%?

[winner69]

Made the guys at the NZX work overtime waiting for the interim report .... the good old after 5 trick

http://www.nzx.com/markets/NZDX/SCF010/announcements/3566942/Interim-Report-Provided

Completely out of date but gives a lot of insights into what a disaster SCF is and reading some of the notes you would have to think there is heaps more to come oout

A $200m loss .... equity at Dec was $55m .... obvious the recent $22m was needed as a balancing item to allow the auditirs to say we present these accounts on a going concern basis

No wonder Treasury is still worried about finance companies

Good old government eh .... allowing SCF to continue in business ... even though the extended guarantee costs SCF more than $2m a month

As a taxpayer am I proud we bailed them out .... no

[Enumerate]

A $200m loss .... equity at Dec was $55m ....


Let me see ...

Ordinary Shares $285million
Perp Pref Shares $120million
Retained Earnings ($322million)

Total Shareholders Equity $55million

Why oh why would you buy SCFHA's? Maybe if you paid 25cents per share and reckoned a 20% pa yield was compensation for the risk of having payments halted.

It is clear the company is desperate to improve capitalisation ratios. Almost $2billion of liabilities funded with $55million of capital is scary beyond words.

They have $245million in impairment losses on a book of $1.5billion. This is about 16%!! It is difficult to tell if this is the difference between the default rate and the recovery rate (could be 16% default rate with 0% recovery rate, or 32% default rate with 50% recovery rate, etc.) This is seriously ugly - I would have thought an 8% rate would have been considered a disaster. It is certainly not over yet .... expect the current year to bring more of the same..

Restatement of past periods with significant additional losses - not a good look.

Since balance, we have the introduction of Scales/Helicopters and the $22million. My basic assessment is that even with these changes equity holders and pref holders have been essentially wiped out. We are now waiting for a deal to be announced in which the new owner of SCF will introduce capital to a level to meet capital adequacy ratios. How much consideration existing equity holders receive is really up to the largess of the new owner.

[Alan3285]

Why oh why would you buy SCFHA's? Maybe if you paid 25cents per share and reckoned a 20% pa yield was compensation for the risk of having payments halted.



Yep - I totally agree with this.

I won't be getting back in to the SCFHAs unless the price gets well below its historical low (23c off the top of my head).

My current (gut) feeling is that I would have to see 15c to get me interested at this point.

The SCF010s at 40% yield a few weeks ago were a good buy though ;-)

Alan.

[winner69]

Save some some research

http://www.lostsoulblog.com/2010/04/accountants-nightmare-south-canterbury.html

Quote .... There seems to be a theme developing: SCF announces a transaction, and claims it shows a creditor or investor is showing confidence in SCF's prospects and future. Months later, when their prospectus or accounts come out, the full story emerges that the transaction was secured by prior charge on SCF's assets in some way or other, perhaps along with further impairments, losses or other bad news. I wonder how long it will take to find out what assets the latest convertible notes are secured over. As for the quality of the accounts themselves ... struth!

A complete disgrace ... those accounts are rubbish .... and us taxpayers do all we can to ensure they survive

The NZX should makes comment .... yeah right

[Corporate]

Save some some research

http://www.lostsoulblog.com/2010/04/accountants-nightmare-south-canterbury.html

Quote .... There seems to be a theme developing: SCF announces a transaction, and claims it shows a creditor or investor is showing confidence in SCF's prospects and future. Months later, when their prospectus or accounts come out, the full story emerges that the transaction was secured by prior charge on SCF's assets in some way or other, perhaps along with further impairments, losses or other bad news. I wonder how long it will take to find out what assets the latest convertible notes are secured over. As for the quality of the accounts themselves ... struth!

A complete disgrace ... those accounts are rubbish .... and us taxpayers do all we can to ensure they survive

The NZX should makes comment .... yeah right


Jeez I wonder if EY will sign these off.

[Dr_Who]

Jeez I wonder if EY will sign these off.

Didnt one of these geezer accounting firms (cant remember which one) sign off the ALF/Hanover deal and got the nta completely wrong?

[winner69]

Its a real worry when a CEO says something like this ... "But Maier said once that was taken out of the equation the company had a break-even year - better than many other finance companies."

It was the delusional normalised profit proforma that has the downfall of many in boom times before they go broke ... go on Maier you might be a hard honest man but please no bulls hit

[minimoke]

Have I got this right?. On 31 March SCF did not have a set of finalised 30 Dec Accounts. Nor did any accounts get past an Auditor.
On 1 April the goverenment accepts SCF into the Extended Guarrantee scheme - so on what basis was this decision made if there were no accounts available?

It wasn't until 10/4 that the Interim Aco****s are produced - and even then they are unaudited. And what do the Accounts show - a sad state of affairs with previous period adjustments (a YE loss now of $155m) and a six month PE loss of $191M and $55m in equity. And still the tax payers are going to provide support via the Extended Deposit Guarantee.

[POSSUM THE CAT]

Minimoke It is my opinion the extended Govt. guarantee was the lesser of two evils. Otherwise SCF would collapse before the end of the present guarantee triggering massive Govt payments to depositors.

[Romulus]

Spot on Possum, the Govt needs SCF to get pass 12 Oct 2010,given the haste in which the original Gtee was drawn up and it never envisaged covering the current sencario. I still think SCF can go under before Oct 2010 due to over 1.2b due before that date and very little prospect of any funds of that level coming in. Remember all bonds are covered except SCFHA (equity), so a lot of water yet to flow under the bridge.

[minimoke]

Minimoke It is my opinion the extended Govt. guarantee was the lesser of two evils. Otherwise SCF would collapse before the end of the present guarantee triggering massive Govt payments to depositors.Yes, I suspect you are probably right. It looks like Treasury is taking a pragmatic appraoch and trying to minimise exposure to tax payers. It looks like they figure they are up for $849m if SCF goes belly up pre October. So how can this postion be improved - well, by seeing SCF survive past 12 October when coverage is reduced and the deposit taker levy increases. It looks like a managed exit strategy for SCF - but not one they are telling people about.

[winner69]

A few weeks in one of their announcements they said equity now stands at $256m (or something liek that)

Today they say -

'Total equity in South Canterbury Finance is now $206.6 million, comprising
$158.9 million of new capital subscribed in January and February and existing
equity of $47.7 million as at 31 December 2009. The expected capital
contribution announced by the Company on 31 March 2010 resulting from
Torchlight Fund's proposed subscription for convertible notes in Southbury
Corporation Limited will further enhance South Canterbury Finance's equity by
at least $22 million

Wonder what the number will be next month?


Hope for the sake of the country (ie taxpayers) and punters they don't go broke

But it seems to me it would be better if the government took over NOW as managers and then when the much vaunted 'silver lining from the global financial crisis will be a soundly based finance sector with integrity that supports economic growth and delivers reliable returns for investors' actually happens the taxpayer can get the reward for underwriting the rsik brought on by incompetence and all that

I'm all for that

[Balance]

Pragmatism wins the day.

Let's hope SCF makes the best of the lifeline and survives.

In fact, prospers so that NZ can prosper too with more NZ owned financial institutions prepared to lend to NZers.

And to Hubbard - no more treating SCF as your private piggy bank.

[Snoopy]

And to Hubbard - no more treating SCF as your private piggy bank.


Of course there are two ways to tackle the private piggy bank problem.

1/ Take the Piggy Bank off the Hubbard mantelpiece.
2/ Remove Hubbard's need by removing his pennies!

Perhaps both solutions will come into play?

SNOOPY

[QOH]

on TV1's midday news, the phones were running red hot at SCF this morning with investors rushing to invest since the new prospectus has been released. Another one for the Tui's billboard?

[winner69]

on TV1's midday news, the phones were running red hot at SCF this morning with investors rushing to invest since the new prospectus has been released. Another one for the Tui's billboard?

Jeez if SCF phones are running hot then the main link to Chris Lee's in Paraparaumu must have blown up with the locals telling him to reinvest their money as well

Maybe 1/2 billion invested with them today?

[minimoke]

... and a six month PE loss of $191M and $55m in equity. And still the tax payers are going to provide support via the Extended Deposit Guarantee.

Well I can't keep up. Today, just a few days later, the loss is now apparently $198.6m and equity is at $47.7m. How is it the Auditors can find another $7.6m of losses over a weekend yet SCF can't keep track of it themselves. It was only back in early April they thought the loss would be $154.9m. Thats another $44m in losses that has just appeared from nowhere.

[winner69]

Jeez if SCF phones are running hot then the main link to Chris Lee's in Paraparaumu must have blown up with the locals telling him to reinvest their money as well

Maybe 1/2 billion invested with them today?

Finger in the dyke seems appropriate diescription

[Dr_Who]

Tui moment :D

[GTM 3442]

I won't be getting back in to the SCFHAs unless the price gets well below its historical low (23c off the top of my head).

My current (gut) feeling is that I would have to see 15c to get me interested at this point.


The current 40c for SCFHA does seem somewhat on the high side . . .

Would you care to make a prediction as to 15c ? Perhaps we could run a sweepstake ?

[Awamoa]

I have just sent a deposit to SCF for 18 months at 8%.Why?
1/Govt guarantee
2/I would like to see this company suceed
Hopefully there will be plenty prepared to do the same and let all the knockers look for another target.

[Enumerate]

Fact is the SCFHA's are either worth $1 or they are worth nothing.

The market is saying that they have a 40% chance of being worth $1.

This may, or may not be accurate ... you cannot verify an opinion from public information. My basic problem with the SCFHA's is that there are much better alternatives to taking a punt.

The future for SCFHA holders is that if SCF finds the capital it needs ($380million, in some reports) then SCF will endure a few miserable years of rebuilding (low margins due to having to pay the gov't retail guarantee margin, restructuring/recovery costs (partitioning the loan book, pursuit of recovery litigation) and a scale bask in the basic business levels (though it seems some of the past business was in fact not worth having). The SCFHA holders can expect to have their interest payments suspended for a number of years.

If this was an Australian company - SCFHA's would be trading at about 15cents. Once the interest payments stop - 10cents. If there is no early good news on the recapitalisation - less than 10cents.

[Enumerate]

I have just sent a deposit to SCF for 18 months at 8%.Why?
1/Govt guarantee
2/I would like to see this company suceed
Hopefully there will be plenty prepared to do the same and let all the knockers look for another target.


You have bought an asset of dubious quality except for the fact that Michael Cullen stitched up the NZ Taxpayer to take the fall, if the worst happens.

Your reason for this is because you would like to see them succeed. (Despite the fact that they authored their own demise - SCF were not forced to make stupid loans and have bad processes. This begs the question whether SCF actually deserves to survive).

Fact is that your debenture money simply allows SCF to bleed for a bit longer. (The only material event that will save them is a significant recapitalisation, in the short term, and a complete review of their business activities in the long term. It is not clear if you lazy money debenture investment will achieve these goals).

I would have thought that more rational investment goals would have been to invest your money productively in preparation for some SCF capital raising. (This requires you to leave the safety of the taxpayer provided guarantee and to make sharp investment decisions based on fully understanding the risks and rewards).

[minimoke]

I have just sent a deposit to SCF for 18 months at 8%.Why?
1/Govt guarantee
2/I would like to see this company suceed
Hopefully there will be plenty prepared to do the same and let all the knockers look for another target.
Your Reason #2 is one I hear most often used by depositers - but when pressed they can't really work out why they want the company to suceed other than they have deposited with them for years and have faith that Alan will deliver the goods. When pressed they have few other reasons for their deposits.

But if we look at your deposit choice in a bit more detail there are probably a few more reasons:
- you are probably a bit of a gambler. You know reward is tied to risk and at 8% you'll be getting a much higher reward for risk than most other offerings out there.
- You know they risk is really high (thats why they have the guarantee) but you are happy to let the tax payer back your punt rather than Alans skills.
- You seem content to let SCF experience greater expenditure on the Guarantee levy. Greater expenditure means less cash to enbable the company to grow and prosper.
- You are prbably more interested in making sure current depositers get paid out when their deposits fall due. This will help feed the "Sucess Story"
- You want the compnay to suceed. Well that, of course, is a given. No matter where we put our money we want the compnay to succeed. I have yet to hear an investor say "I'm putting my money into XYZ company and am not too bothered if they succeed" (tasman Capital is an exception)
- I have no faith in the company beyond Dec 2011 (assumning it lasyts that long) when the Guarantee expires otherwise I woudl have put my moey in for a longer term.

So what you are really saying is "I'm more than happy to take the 8%, its the best rate around and the tax payer will back my purely self interst in securing the best deposit rate around"

[minimoke]

A
I haven't read how the Govt guarantee scheme works and where the scheme ranks in terms of being paid out in the event of a collapse. Anyone with first hand knowledge care to enlighten us all?
Belg, there have only been three compnaies to call on hte Guarantee (Vision, Mascot and Strata) so not a lot of detail we can draw on to answer your question. My understanding is that when the Guarantee is called the Crown takes over the rights of the depositor. So if its a recievership, whatever rights the Depositer had will go to the crown - and that will determine the Crowns placing on the list of order of payments.

As for assets, depositors relying on hte Extended Schem may need to watch out for teh Crowns "Opt Out" option which enables them to withdraw the Guarantee if the Company's net tangible assets drop below a certain point. Depositors in SCF might want to keep an eye on NTA becasue their cash is by no means 100% assured.

[biker]

I have just sent a deposit to SCF for 18 months at 8%.Why?
1/Govt guarantee
2/I would like to see this company suceed
Hopefully there will be plenty prepared to do the same and let all the knockers look for another target.

Brian Gaynor says this morning that he hopes you have read the prospectus REALLY well.

The prospectus dated 10th April clearly says " The extended Guarantee Scheme does not apply to Deposits taken under this prospectus."

Be careful out there folks.

[Balance]

Brian Gaynor says this morning that he hopes you have read the prospectus REALLY well.

He is of course a knocker according to the likes of Awamoa.

Likewise anyone who questions how Hubbard grossly mismanaged SCF.

[Deev8]

Brian Gaynor says this morning that he hopes you have read the prospectus REALLY well.
The prospectus dated 10th April clearly says " The extended Guarantee Scheme does not apply to Deposits taken under this prospectus."
Be careful out there folks.
Indeed it does say that, but I have a feeling that we will get a "clarification" from Brian Gaynor in the not-too-distant future. At least I hope that we do because in general I respect Brian Gaynor for his fairness and honesty. What he actually said about Deposits with South Canterbury is accurate, but it isn't the complete picture and so it is misleading.

The South Canterbury prospectus and investment statement deals with both Secured Debenture Stock and Unsecured Deposits. Anyone (who is otherwise eligible) investing in the Debenture Stock (which is probably most South Canterbury investors) will be covered by the deposit guarantee scheme until 12th October 2010 and then by the extended retail deposit guarantee scheme until the end of 2011. Anyone investing in the Unsecured Deposits will not be covered.

I have a feeling the Mr Gaynor didn't read the prospectus really well. Instead he quickly scanned it and gave an opinion without understanding the detail - Not understanding the detail is aided by South Canterbury producing on of the most opaque documents that I've seen in a long time!

[Awamoa]

I havent seen Bryan Gaynors article however the latest Prospectus has 2 offers.
The first is for Secured Debentures and the second is for Unsecured Deposits.Did he mention this?
My understanding is that the Secured Debentures are covered by the GG and the Unsecured Deposits are not.This is why the Unsecured Deposits are offering an extra !%.

[Deev8]

The South Canterbury prospectus and investment statement deals with both Secured Debenture Stock and Unsecured Deposits. Anyone (who is otherwise eligible) investing in the Debenture Stock (which is probably most South Canterbury investors) will be covered by the deposit guarantee scheme until 12th October 2010 and then by the extended retail deposit guarantee scheme until the end of 2011. Anyone investing in the Unsecured Deposits will not be covered.
Page 13 of South Canterbury's new investment statement does spell it out:

South Canterbury Finance Limited is offering two forms of investment:
a. First Ranking Registered Debenture Stocks (“Stock”), which Stock has the benefit of the Crown guarantee; and
b. Unsecured Deposits (“Deposits”).

The Deposits do not have the benefit of the Crown guarantee and, on that basis, fall within the definition of “Excluded Securities” as defined in the amended Crown Deed of Guarantee dated 11 December 2009 and the Crown Deed of Guarantee for the Extended Guarantee Scheme dated 1 April 2010. Accordingly, none of South Canterbury Finance’s obligations under or in respect of the Deposits
taken under this Investment Statement have the benefit of the Crown guarantee under either the Deposit Guarantee Scheme or the Extended Guarantee Scheme.

That's reasonably clear, though the reader has already been confused by references to stock and deposits before they wade through to the statement on page 13.

[Jaa]

Gaynor's article must have been pulled from the NZHerald website as I couldn't find any sign of it at midday.

From the below NZX announcement from SCF, so it should have been. In this case the knockers clearly got carried away.


Clarification of statements made in media

South Canterbury Finance Limited confirms that the current and extended
Crown guarantee applies to all existing eligible investors in First Ranking
Secured Debenture Stock and to all eligible investors making an application
for First Ranking Debenture Stock issued in accordance with the terms of the
offer in the Investment Statement and Prospectus registered on 12 April
2010.

Existing eligible unsecured depositors will also continue to enjoy the benefit
of the current and extended Crown guarantee. Unsecured deposits received
on or after 12 April 2010 are excluded from the current and extended Crown
guarantee.

The Investment Statement and Prospectus registered yesterday is primarily
for an offer of First Ranking Debenture Stock.

At 31 December 2009, funds provided by debenture holders and unsecured
depositors totaled $1.783 billion, of which $1.768 billion is First Ranking
Debenture Stock. Unsecured deposits comprised only $14.6 million, or less
than 1 per cent, of that amount.

Ends

It must have been rushed out as there are spelling mistakes in it!

[minimoke]

It must have been rushed out as there are spelling mistakes in it!
Like the Prospectus -it look like something that has been scanned and stuck on the photocopier.

But thats an aside. The Prospectus is clearly for "$1,200m of registered first ranking debenture stock and $50m of unsecured deposits" in the same sentence, font and bold type. It's a bit disengenous to suggest its primarily for first ranking debenture stock when there is plentyy of info in the propectus covering the unsecured deposits. Congratulations to anyone aho is able to read and comprehend every word in the prospectus.

[Alan3285]

The current 40c for SCFHA does seem somewhat on the high side . . .

Would you care to make a prediction as to 15c ? Perhaps we could run a sweepstake ?

Unfortunately, 15c is more of a statement of hope (of opportunity) than a prediction per se.

I would be very happy to be proven wrong, but I suspect that the great investing public of NZ will stay in there at too low a yield, and I'll miss the chance to buy a bargain.

In NZ we are, unfortunately, financially illiterate compared to people in the UK and US (for example). That tends to mean that you get too many people that are very quick to jump onto anything that looks good (property in the last five years, finance company deposits over the last seven or so years), and then another group too quick to put things down (look at the unbalanced commentary in this thread for obvious examples).

However, I'll be patient and see what happens. Might pick them up at 15c and sell again for 30c like the 23c / 46c turn I made last year.

Alan.

[Balance]

Unfortunately, 15c is more of a statement of hope (of opportunity) than a prediction per se.

I would be very happy to be proven wrong, but I suspect that the great investing public of NZ will stay in there at too low a yield, and I'll miss the chance to buy a bargain.

In NZ we are, unfortunately, financially illiterate compared to people in the UK and US (for example). That tends to mean that you get too many people that are very quick to jump onto anything that looks good (property in the last five years, finance company deposits over the last seven or so years), and then another group too quick to put things down (look at the unbalanced commentary in this thread for obvious examples).

However, I'll be patient and see what happens. Might pick them up at 15c and sell again for 30c like the 23c / 46c turn I made last year.

Alan.

Disagree with you.

Madoff, sub-prime, Worldcom, Lehman Bros etc are indicative of how bad investors are in the US.

NZ is no worse and no better.

[Alan3285]

In NZ we are, unfortunately, financially illiterate compared to people in the UK and US (for example). That tends to mean that you get too many people that are very quick to jump onto anything that looks good (property in the last five years, finance company deposits over the last seven or so years), and then another group too quick to put things down (look at the unbalanced commentary in this thread for obvious examples).




Disagree with you.

Of course you would ;-)

Alan.

[Balance]

Of course you would ;-)

Alan.

NZers lost less money this time round than the trillions lost in the US and UK.

It is a minority who foolishly left their monies with finance companies - not the majority.

[GTM 3442]

However, I'll be patient and see what happens. Might pick them up at 15c and sell again for 30c like the 23c / 46c turn I made last year.

Alan.

I suspect that if you pick them up at 15c you'll spend some time hoping that the Receivers will leave you 20c.

Having said that, the SCFHA's seem prone to (over)reacting to any good news, so maybe you have the chance of one or two more turns on the merry-go-round ! ? !

[Alan3285]

I suspect that if you pick them up at 15c you'll spend some time hoping that the Receivers will leave you 20c.


That wouldn't be too bad, but I think that if the receivers are in, the SCFHAs will get nothing at all.

They are a yield gamble - at 15c, IF the interest keeps flowing, and IF the 1 yr swap rate doesn't change much come 1 Oct 2010 and 1 Oct 2011, then you'd get all your money back including cost of funds in about 3 yrs.

Lots of 'ifs' there though, so I would only put money into the SCFHAs that I was prepared to lose completely - a very small section of your portfolio!




Having said that, the SCFHA's seem prone to (over)reacting to any good news, so maybe you have the chance of one or two more turns on the merry-go-round ! ? !

Agreed - hence my comment above that they can be a fun ride as long as you get in and out and lock in gains. I could put a few thousand in them now, lose the lot, and still be 'up' overall from dealing in SCFHAs, but that doesn't mean I want to lose a few thousand from this point!


Alan.

[Deev8]

Gaynor's article must have been pulled from the NZHerald website as I couldn't find any sign of it at midday.
The Brian Gaynor comments from yesterday were not in a NZ Herald article - he made the comments during his weeky appearance on the TV One NZI Business programme. The programme's presenter Corin Dann read a brief correction during this morning's programme.

[GTM 3442]

Alan, you may have to dust off your chequebook if this keeps up !

[Snapper]

Don't forget, though, the interest is taxable but if they tip over then the loss can't be claimed. If they're at 15 cents then the payback period would be about 27 months (assuming 33% tax rate).

[Alan3285]

Alan, you may have to dust off your chequebook if this keeps up !

I know, I've been watching in morbid fascination all day.

There isn't much support on the board, but I suspect a lot of people will be watching for a sub-20c figure, so probably they'll struggle to get much below that.

I'll keep watching.....

Alan.

[Alan3285]

Hi Snapper,


Don't forget, though, the interest is taxable but if they tip over then the loss can't be claimed. If they're at 15 cents then the payback period would be about 27 months (assuming 33% tax rate).

Wouldn't that depend entirely on your situation?

I'm no expert on tax, but if you pay tax on your trading gains (capital gains, not interest received), then wouldn't the loss be deductible too?


Alan.

[GTM 3442]

I know, I've been watching in morbid fascination all day.

There isn't much support on the board, but I suspect a lot of people will be watching for a sub-20c figure, so probably they'll struggle to get much below that.

I'll keep watching.....

Alan.

Yeah. I see a couple of bids up for 22c then down to 12c (5000) and 10c (50000). Not a big volume, but . . . . .

[Alan3285]

Yeah. I see a couple of bids up for 22c then down to 12c (5000) and 10c (50000). Not a big volume, but . . . . .

I'd be happy to see it trade below 20c, but I still think a lot of other buyers will appear if anyone offers to sell at anything in the teens.

Still, no harm in hoping.....

Alan.

[Enumerate]

It would be logical for the company to suspend interest payments on the SCFHAs. Remember, this is a suspension - there is no accrual of interest payments - the perpetuals can pay out nothing ... perpetually.

Maybe word is getting about that this is more than an improbable event - more like a certainty if there is no short term progress on recapitalisation.

Remember also, the prognosis for the prefs, if the worst happens, is not that good. The prefs are considered equity - both pref and equity holders would be likely to be wiped out.

Do you really think that in the recapitalisation process that the pref holders will be treated any differently from equity holders ... I don't think so.

Face facts - SCF is a zombie finance company. The government is underwriting this mess. Just look to Telecom to see how well "bad boys" get treated.

[Alan3285]

Article in the NZ Herald today - very critical of the whole govt guarantee scheme:

http://www.nzherald.co.nz/news/print.cfm?objectid=10638903

They should have jumped up and down when Cullen introduced it, but didn't want to criticise him for anything at all with an election coming up I suppose - not that it helped them.

Alan.

[Enumerate]

Almost all the loans in the property sector are interest-only loans and for the majority of those loans, interest is capitalised during the term of the loan and only paid on maturity. In the company's experience, lending of this nature is not uncommon particularly in the case of loans for property developments.


This sends a chill down my spine. Add one more nail to the coffin.

Another observation is that it is highly likely that the toxic effect of all the related party loans has yet to be dealt with. For example, the Kelt Finance and Dairy Holdings subsidiaries are not part of the charging group. It is not clear if appropriate provision for writedowns have occured for these units. There are about $220million in related party loans that could turn into a significantly stinky toxic mess.

In effect, SCF is our very own South Island Ponzi scheme.