The detailed terms of the Debt Restructure Proposal will be set out in notices of meeting and an explanatory memorandum to be sent to investors, and short
form prospectuses which will be available from www.hanover.co.nz
Hanover Debt Restructuring Plan
Media briefing
20 November 2008
Agenda
Greg Muir
Overview
Mark Hotchin
The finance company sector
Peter Fredricson Current position
Debt Restructuring Plan
Repayment schedule
Debt Restructuring Plan vs receivership
Independent appraisals – PwC and KordaMentha
Greg Muir
Governance and management
Conclusion
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Overview
• Global credit issues building for some time – NZ finance sector had specific issues,
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subsequently worsened by the global crisis
Hanover recognised lack of funding diversification early and sought to change
Hanover Debt Restructuring Plan provides for
– Additional Financial commitment of up to $96 million by shareholders
– retention of board and management, with continued oversight by trustee and
trustee appointed independent
– progressive repayment of investors’ principal
To be put to investors for approval on 9 December 2008
Recommended by the board and preferred over alternative by trustee’s
independent advisors
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The finance company sector
• Provision of ‘mezzanine’ finance – between senior bank debt and shareholders’
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equity – is historically entrenched and successful
Generally repaid as developments complete and new purchasers settle, or on
refinancing by other lenders
Currently distressed, with…
– Reduction in numbers of ready buyers for completed developments
– Contracting senior lender activity
– Significant slowing in borrowers’ ability to repay through realising assets or refinancing
• Conditions will improve in time
• Ongoing opportunity for specialist financiers to support property and infrastructure
development
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The current position
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Hanover ceased accepting funds and making repayments on 23 July 2008
Options for recovery of loans and repayment of investments - the Debt
Restructuring Plan or receivership
Total 17,630 investors in the group, with $553m invested
Hanover Finance Limited
United Finance Limited
Hanover Finance Limited
Hanover Capital Limited
Secured investors
Approx. 13,800 secured depositors
Approx. 2,575 secured depositors
Unsecured investors
Approx. 125 subordinated noteholders
Approx. 1,130 preferential bondholders
$462.5m
$64.7m
$2.1m
$24.2m
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The current position
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Unable to repay all due amounts at present
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Borrowers need support over the period of the restructuring to maintain the
quality of the asset book and provide the best opportunity to pay out all
investors
… but confident that time will enable this to be accomplished
Asset quality is good enough, in our view, to fund principal repayment as
assets are collected over five years
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Debt Restructuring Plan
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Commitment of up to $96m by shareholders – if plan approved
– $36 million of cash; being $10 million for principal payments as required, and
$26 million for debt reduction in Axis Property Group
– Personal guarantees available if required from 2010 – $20m
– Equity in property assets in Axis Property Group – $40m
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Shareholder cash and property commitments locked in over five-year term
Board and management operate the businesses as a going concern
Experienced team that understands the assets and the market
Separate company plans require approval – all conditional on HFL Secured
Deposits Debt Restructure
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Repayment schedule
Secured investors
Hanover Finance Limited (1)
Target of all principal repaid within five years
Quarterly repayments commencing March 2009
United Finance Limited (1) (2)
Target of all principal repaid within five years
Quarterly repayments commencing March 2009
Subordinated investors
Hanover Finance Limited
50% of principal to be repaid on 31 December 2013
Hanover Capital Limited
50% of principal to be repaid on 31 December 2013
(1)
(2)
Interest payment is possible at the end of the term, based on recovery formula
Accelerated repayment is possible, based on recovery timetables
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Repayment schedule
Year ended
HFL Secured
Depositors
Qtr / Yr
UFL Secured
Stockholders
Qtr / Yr
31.12.09 (1)
2% / 8%
2% / 8%
31.12.10
2.5% / 10%
2.5% / 10%
31.12.11
3% / 12%
3% / 12%
31.12.12
8.75% / 35%
8.75% / 35%
31.12.13
8.75% / 35%
100%
$462.5m
Total
HFL Sub.
Noteholders
Qtr / Yr
HCL
Bondholders
Qtr / Yr
8.75% / 35%
50%
50%
100%
$64.7m
50%
$1.1m
50%
$12.1m
(1) First payment 15 March 2009, thereafter quarterly on
last day of each quarter
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Debt Restructuring Plan
vs Receivership
DRP
Receivership
Continue to trade as a going concern
Breakup and sale in current environment
Benefit of shareholder commitment up to $96m
No increased shareholder commitment
Retain institutional and market knowledge of
board and management
Likelihood of higher costs
Borrowers seek lower repayment levels
Modified governance regime
Full control by receiver
• Independent director and chairman, group credit and
investments committee
• Independent director continues to chair group audit, risk and
compliance committee
• Modified trustee supervision / monthly reporting
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Independent appraisals
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Commissioned by the trustees on behalf of the investors
Detailed review of the proposal, repayment forecasts, assumptions,
shareholder commitments
PricewaterhouseCoopers in respect of HFL Secured Depositors and UFL
Secured Stockholders
KordaMentha in respect of HFL Subordinated Noteholders and HCL
Bondholders
Support the view that the proposal is likely to provide a better
outcome than receivership
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PwC scenarios –
HFL Secured Depositors
Estimated Distributions - Debt Restructuring Proposal vs Receivership
120
PwC Sensitivity
Scenario 1
PwC Sensitivity
Scenario 2
PwC Sensitivity
Scenario 3
100
cents per $1
18.1¢ per $1
17.1¢ per $1
80
16.2¢ per $1
60
40
20
0
Debt
Restructuring
Proposal
Receivership
Debt
Receivership
Restructuring
Proposal
Distributions to 31 December 2013 Residual Axis Assets
Debt
Restructuring
Proposal
Residual Existing Loans
Receivership
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PwC scenarios –
UFL Secured Stockholders
Estimated Distributions - Debt Restructuring Proposal vs Receivership
140
PwC Sensitivity Scenario 1
120
Undistributed
excess of 18.9¢
per $1
Undistributed
Excess of 3.8¢ per $1
9.3¢ per $1
100
cents per $1
PwC Sensitivity Scenario 2
14.8¢ per $1
80
60
40
20
0
Debt Restructuring
Proposal
Receivership
Distributions to 31 December 2013
Debt Restructuring
Proposal
Residual Axis Assets
Residual Existing Loans
Residual UFL Investments
Receivership
Cash on Hand
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KordaMentha – HFL and HCL
Subordinated investors
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KordaMentha has assessed the proposal on the same basis and reached a
similar conclusion
• Highly subordinated debt instruments (due to structure or ranking)
• Nil value in the context of a receivership
• Offer to promote ahead of deferred consideration (for the shareholder
support) at 50c in the dollar
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Governance and management
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Trust deeds amended to give effect to the individual company restructures
Boards of HFL and UFL to comprise two shareholder representatives and
two independent directors – at least one approved by trustee
New independent director to head Audit, Risk and Compliance Committee
and Credit and Investments Committee
New lending subject to trustee-approved protocols and cash availability
restrictions
Continued reporting to trustees under trust deeds & applicable legislation
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Conclusion
The Hanover board believes the proposal is in the best interests of all
investors and recommends that investors vote in favour of it
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Maximises recovery potential by
– Retaining institutional and market knowledge
– Facilitating the additional contribution of up to $96m from shareholders
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Information pack mailed to investors from today and at www.hanover.co.nz
‘Roadshow’ from 25 Nov to outline the proposal and discuss with investors
Investor vote in Auckland on 9 December
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The detailed terms of the Debt Restructure Proposal will be set out in notices of meeting and an explanatory memorandum to be sent to investors, and short
form prospectuses which will be available from www.hanover.co.nz