"We would prefer the assets to be sold as a going concern", rather than broken up and sold.  

Receivers Keryn Downey and William Black of McGrathNicol are looking for interested parties to contact them after a last ditch bid to secure an equity stake failed last week.

The firm collapsed last Tuesday, triggering a call on the retail deposit guarantee scheme, and prompted the government to act quickly and write out a $1.775 billion cheque to cover SCF's creditors. 

After consulting with staff and other stakeholders, the receivers are "preparing the group's assets for a formal sale process," Downey and Black said in a statement.  

The receivers said they expect to update SCF investors this week on matters impacting on the firm's operations, including its funding arrangements.  Key said that after realisations from the receivership, and taking into account the $400 million to $500 million, the cost of the SCF rescue would be about $100 per person. 

He suggested it was "worth investing that $100 for the health of the New Zealand economy", not only in bailing out SCF, but for the certainty it produced at the time of its introduction, at the height of the global financial crisis in late 2008. 

The only "dumb" thing about the scheme was that its first version, introduced by the Labour government in its dying days, had allowed smaller finance companies into the scheme at no cost, while larger financial institutions had to pay fees to join. 

That was rectified when the government extended the scheme to October 2011, and much stiffer fees were charged for institutions that could gain an acceptable credit rating and wished to remain covered. 

The principal assets still be realised are Five Star's accounts receivable, and the liquidator expects further recoveries from a number of debtors, including Richmond Park Properties, which is owned by directors Nicholas Kirk, Anthony Bowden and Marcus Macdonald.

Five Star's four former directors face more than 100 charges from the Serious Fraud Office, carrying a maximum penalty of seven years' jail apiece. The prosecution relates to loans worth some $50 million, most of which the SFO says is not recoverable.

Five Star Finance and Five Star Consumer Finance called in the receivers in 2007 owing some $77 million to secured debenture holders. The SFO estimates the losses to investors and creditors of the Five Star Group to exceed $85 million.

The former directors already face charges from the Companies Office over alleged breaches of securities law, while Five Star Consumer Finance's receiver has lodged a civil suit against the board for failing its duty to the company.

I'd argue though that SCF's collapse is not like most of the other failed finance companies. (For a start it's bigger!)

Most of the failed companies were dodgy. The growing list of legal action is testament to this.

Was SCF dodgy in the same way? Arguably not. It certainly wasn't run by the nouveau riche in Auckland, the white shoe brigade or the dodgy dealers.

It's one, as Carmel Fisher noted on Larry William's Newstalk business programme, that has stirred emotions and pitched many groups against each other.

But we need to cut through the emotion.

The questions which, for me, linger around SCF are firstly its openness. The company has never, until recently, been transparent. It has always refused to provide information to people.

One of the best examples is the research project FundSource tried to establish. It wanted to understand the finance company sector and get companies to voluntarily disclose pertinent information.

SCF always refused.

This was either arrogance or management trying to hide what it was doing.

Secondly, blame must be sheeted home to some of the management. CEO Sandy Maier was interesting on Campbell Live last night when he described some of the lending practices of the company, especially when money came flooding in under the government guarantee as "cyclical excesses and rushes to the head".

Former CEO Lachie McLeod should be called to account for the company under his watch as it appears that is when most of the damage to this 80-plus year old firm took hold.

The third point, and one perhaps is the most worrying, is comments around how the Hubbard businesses were run. According to the Statutory Managers Mr and Mrs Hubbard weren't likely to win any best practice awards for their back office systems.

However Prime Minister John Key made a comment that administration wasn't much better at SCF. Surely this is something management should have sorted and ratings agencies like Standard and Poors' should have been all over.

While the "commentators" were baying for blood it seemed that SCF was nearly too big to fail and that the political fallout would have been too great for this government.

Well that was wrong. Receivership may well be the best option, particularly because the assets are relatively good (compared to other failed finance companies).

Don't be surprised to see a deal done quickly where some of the assets are on-sold.

As for the government. Well it has handled the collapse pretty well. Writing a $1.6 billion cheque on the spot is a pretty good effort. Investors should be happy (enough) and it is a smart move that the government has essentially taken over the company. (As an aside it is now a finance company - in wind down - and it maybe some sort of political omen).

Whether it has handled the statutory management process well and what effect that had on SCF's demise is another matter.

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Liquidators John Cregten and Andrew McKay said they won't call a meeting of creditors because they "believe the value of the assets of the company available for distribution to unsecured, non-preferential creditors is likely to be zero."

On that basis, a creditors' meeting would impose an "unreasonable" additional expense on funds available to complete the liquidation.

The financial statement shows Strategic had some $11.7 million in cash, assets and accounts receivable that haven't been specifically charged and are available to preferential creditors. Charged assets include the net property loan book at $234 million, making assets available to secured creditors $246.7 million.

Against that comes money owed to Bank of Scotland of $76 million and secured debenture stock of $291.7 million, leaving a deficit after secured creditors of $121 million.

When money owed to unsecured creditors is included, the book value deficit blows out to $195.5 million.Unsecured creditors are owed $55.7 million in interest payments, $11 million from subordinated notes and $1.46 million for unsecured deposits. Trade creditors are owed $526,000.

Strategic Finance was sent to the receivers in March by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since December 2008. The finance company missed its milestone repayment on January 7 after it failed to generate enough loan recoveries.

HBS chairman Frank Spencer said the reality for non-bank deposit takers is that they face onerous rules from December, when the Reserve Bank's prudential requirements come into effect, and that joining a bank gave the institution's members much more security in financial sector that has struggled for the past three years.

"We're strong at the moment, but one of the reasons why we've done this now is that the deposit war is going to hammer us, and regulation increases our operational costs and squeezes our margins," Spencer said.

The access to new products was also a major factor for HBS, which will very much be the minor partner in the merger, adding $185 million worth of assets to the new entity.

"Right now we offer two things, mortgages and savings interest - to appeal to future generations we need these products," Spencer said.

The deal is one of a growing number of bids to consolidate the non-bank deposit taking sector, which was dealt a major blow in recent years after the collapse of the property market pushed more than 50 finance companies over the edge.

Under the merger, all staff and management will be retained, and the HBS brand will continue.

By comparison, SCF's $1.6 billion in total liabilities - and a likely net Crown exposure of perhaps $700 million - was less of an economic shock than the high profile of the issue might imply, Eaqub said.

"We need to keep this in context, relative to the stock of debt. For the local economy, particularly around Canterbury and Timaru, this will have some big financial and confidence impacts.

"But it's the confidence aspect that's important, and the potential loss of confidence through to investing in general that I worry about. I don't think there needs to be," Eaqub said.

"Our banks are pretty strong, they are well rated, and have plenty of cash. Depositors (in SCF) are guaranteed, so there won't be a spending shock."

Eaqub cannot be accused of trying to talk the situation up. NZIER today published a gloomy outlook for the New Zealand economy over at least the next year. The only bright spots are that unemployment rates should remain stable and interest rates will rise more slowly, as the pace of both the local and global economic recoveries slow

The country's biggest bank lost $1.183 billion from its term deposit ledger, taking its total to $33.049 billion.

June quarter keeps Westpac smiling in deposit rate war
Westpac will be smiling after a strong June quarter in the ongoing competition for deposits, after it added $329 million to its term deposit ledger.

The bank had term deposits worth $17.46 billion as at June 30, beating out Bank of New Zealand with some $17 billion and Kiwibank at $6.9 billion. The other major banks have yet to release their general disclosure statements for the quarter.

Blue Star hopes to get bond interest payments up and running
Blue Star Group wants to get its bond interest payments up and running as soon as practical after it suspended them last year after it reached agreement with its senior lenders to reset its banking covenants.

The printing group posted a loss of $2.7 million in the year ended June.

NBDT regulations push Fletcher Building Finance out of market
Fletcher Building's has restructured its funding vehicle to dodge the Reserve Bank's prudential requirements, and will no longer use Fletcher Building Finance as its preferred source of funds.

The changes will not affect existing capital note holders.

Manukau City put up another retail bond
Manukau City is looking to raise more money from the public, and will launch a retail bond of up to $350 million in November.

Minimum subscription will be $5,000, and the bonds will mature in 2017. The minimum interest rate and issue margin will be set at the end of the month.

Dorchester looks to boost directors' fees, CEO pay
Dorchester Pacific is asking shareholders to approve its pool for directors' fees to $300,000 from $240,000, and lift chief executive Paul Byrnes' pay to $341,360.

The increase in directors' fees is to cover the prospect of another person joining Dorchester's board, while Byrnes' package, which includes a loan of $250,000 to buy shares, is to compensate his new full-time role with the financier and insurer.

"Scales is not part of the receivership of South Cantberbury Finance," chief executive Andy Borland said. "Scales operates autonomously from the activities of its majority shareholder and its day-to-day operations will not be affected by the receivership. 

"For the year ahead, we are forecasting a continuation of profitable trading.  We continue to enjoy the ongoing support of our staff, customers and other stakeholders," Borland said.

The receivers' sell-down of SCF assets is still expected to leave the tax-payer short $600 million, English told a media conference in Wellington.

That comes after the government wrote a $1.6 billion cheque to trustee Trustee Executors to help repay debt-holders in the firm within a month, under the government's retail deposit guarantee scheme.

The trustee has also taken out a $175 million loan from the government to repay prior ranking charges, including George Kerr's Torchlight Fund facility to SCF.  

The receivership, which SCF's directors called after failing to secure new funds by a deadline today, triggered the retail deposit guarantee, and the government extended it to include all deposits in the lender.

This includes $20 million of technically "ineligible" foreign and other depositors, on the grounds the government wants unimpeded first ranking status to help sort the SCF mess out. 

English said the government was acting swiftly to remove all other claims on the lender, and will ultimately become the sole beneficiary of the firm.

Receivers Kerryn Downey and William Black of McGrathNicol "will need to consult us on anything significant," English said.  Standard & Poor's downgraded the lender to a ‘D' rating, as expected, after the receivership was announced.  

Chief executive Sandy Maier said the firm received bids in the range of between $100 million and $300 million that would've given it enough capital to keep it ticking, but hit sticking points on the detail of the proposals. 

Though he wouldn't name the parties, he said the last three investors SCF was in talks with were a South-East Asian/U.S. trust, a consortium of local and offshore investors, and an international group with some investment history in New Zealand.  

Maier said he will "go back to a sane and normal life" with his contract having an early out-clause.

Prices for the company's listed bond maturing in 2012, after the extended guarantee, fell to a deep discount earlier this year, with the yield reaching 40% in March. That meant audacious punters could buy them cheap and get paid out in full if South Canterbury failed. 

"There will be a lot of money made in the listed bonds with prices up to 20, 30 and 40 percent, which was all paid today," chief executive Sandy Maier said in a conference call. "A lot of bets in the casino paid off big time today." 

The yield had abated in recent weeks, and was last at 24% before trading in the security was suspended. The government will have to pay-out $125 million on the bonds.  

Maier said the guarantee, which many commentators claim distorts the market, gave him confidence to accept money from "widows and children" as he sought to save the company from collapse.   

The failure of the finance sector has seen a number of low-ball offers for debenture stock, and prompted the Securities Commission to warn investors to make an informed decision before accepting bids significantly below face value.

Though he wouldn't name the parties, he said the last three investors SCF was in talks with were South-East Asian/US trust, a consortium of local and offshore investors, and an international group with some investment history in New Zealand.  

"It requires some bravery today to invest that amount of money, especially in a finance company," Maier said on a phone conference from Christchurch.

Their inability to strike a deal led to the financier calling in receivers Kerryn Downey and William Black of McGrathNicol, and triggered a $1.6 billion payment under the government's retail deposit guarantee.

The collapse means the government faces a net liability in the ball-park of $600 million to cover SCF's 35,000 eligible investors, once the receiver has clawed back cash from asset sales. Some 60% of the government money will go into the South Island, with Timaru, Christchurch and Otago set to see most of it.

Maier said debt holders were today's winners because of the government protection, though preference shareholders, owed some $100 million, and shareholder Allan Hubbard will probably walk away with nothing.

Hubbard said he felt frustrated and hurt at being sidelined by his fellow directors and "straight-jacketed" by the government, and today's announcement hardened his resolve to clear his reputation and business practices.

"I have been prudent and diligent, to the very best of my ability, and have always been deeply respectful of the trust placed in me," Hubbard said in a statement. "It was a big day for the regulators and a sad day for investors."

SCF's so-called ‘good bank', which holds its main financing business, was "largely" restructured to separate it from the non-performing assets ring-fenced in the ‘bad bank', Maier said.

Maier "has been acting like a quasi receiver for some time - trying to sell assets and extract them from whatever loans they can do" and the receiver will continue to do that, said Fergus McDonald, fixed-income manager at Tyndall Investment Management.

The real problem was the bad bank and "the real big question-mark is what value could be ascribed to that," McDonald said. "There are probably not too many that want to take a punt on what the realisable values would be. Look at Allied Farmers - therein lies the problem for a new buyer - the truly unknown."

Finance Minister Bill English will talk to reporters this afternoon. Ratings agency Standard & Poor's is also preparing a statement.

In a statement, English said the government has also made a loan of $175 million to the trustee to enable the firm to repay prior ranking debts. At that point, the government will be "in a position of control" as first-ranked creditor. Ensuring speedy repayment for depositors "will ensure a minimum of disruption to the economy," he said.

While the government will incur the additional upfront cost, "it will ultimately reduce the cost to the taxpayer by about $100 million.

"They had really only had two options, either to call in the receivers or to put together some sort of restructuring," said Andrew Michl, senior fixed interest analyst at ING New Zealand. "One assumes that they were looking at different restructuring options and it just got a little bit too hard in the end, and receivership was the best option for the government and the Treasury."

The government may not face a "massive cost" if the good book is in decent shape, he said.

"Having said that if you look at other finance companies that have gone into receivership, all the risk has been on the downside rather than the upside," he said.

Peter Sikora, director financial institutions ratings at S&P, said it's now up to the receiver "manage the assets for the best interests of all stakeholders," though "it's too early to guess" the outcome. In the past, S&P have downgraded companies to a ‘D' rating when they've called in the receivers.

"As a result of the receivership, the Government is moving swiftly to repay the money owed to South Canterbury depositors under the Crown Retail Deposit Guarantee. We are also taking other steps to reduce the cost to taxpayers and minimise disruption to the wider economy.

Steps the Government has taken include:

• The Crown has nominated the Trustee as the eligible creditor under the terms of the guarantee and will pay the Trustee $1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.

• The Crown will today make a loan to the receiver of $175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts. Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so we can ensure an orderly and well-managed receivership process.

"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy.

"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.

"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets.

"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.

"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.

"The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme," Mr English says.

The collapse means the government faces a net liability in the ball-park of $600 million to cover SCF's 35,000 eligible investors, once the receiver has clawed back cash from asset sales. 

SCF's so-called ‘good bank', which holds its main financing business, was "largely" restructured to separate it from the non-performing assets ring-fenced in the ‘bad bank', Maier said.

Maier "has been acting like a quasi receiver for some time - trying to sell assets and extract them from whatever loans they can do" and the receiver will continue to do that, said Fergus McDonald, fixed-income manager at Tyndall Investment Management.

The real problem was the bad bank and "the real big question-mark is what value could be ascribed to that," McDonald said. "There are probably not too many that want to take a punt on what the realisable values would be. Look at Allied Farmers - therein lies the problem for a new buyer - the truly unknown."

Maier is scheduled to front a media conference shortly and Finance Minister Bill English will talk to reporters this afternoon. Ratings agency Standard & Poor's is also preparing a statement.

Maier said the "receivership is disappointing - and we were working very hard up to the last minute to avoid that outcome," though "it was always going to be a big task."

Prime Minister John Key told reporters yesterday the retail deposit guarantee covered investors in the finance company, though the government will also weigh up how best to protect the tax-payer's interests, as well as the impact on the wider economy.

"They had really only had two options, either to call in the receivers or to put together some sort of restructuring," said Andrew Michl, senior fixed interest analyst at ING New Zealand. "One assumes that they were looking at different restructuring options and it just got a little bit too hard in the end, and receivership was the best option for the government and the Treasury."

The government may not face a "massive cost" if the good book is in decent shape, he said.

"Having said that if you look at other finance companies that have gone into receivership, all the risk has been on the downside rather than the upside," he said.

Peter Sikora, director financial institutions ratings at S&P, said it's now up to the receiver "manage the assets for the best interests of all stakeholders," though "it's too early to guess" the outcome. In the past, S&P have downgraded companies to a ‘D' rating when they've called in the receivers.

The Trustee has appointed Kerryn Downey and William Black of McGrathNicol as receivers of the South Canterbury Finance charging group.

South Canterbury Finance chief executive Sandy Maier says the appointment was inevitable when it became clear that negotiations to inject fresh capital into the business could not be completed by the August 31 deadline.

"Receivership is disappointing - and we were working very hard up to the last minute to avoid that outcome.

"At the heart of South Canterbury Finance there is a sound business supporting many successful small and medium sized enterprises. That is the core business of South Canterbury Finance and a real contributor to the economic well being of that sector of the economy."

Maier says much of the focus in the last nine months has been on re-establishing that element of the business as the "good bank", with an appropriate capital structure and focused management team."

"We had largely achieved that goal as well as taking the decisions to deal with the other elements of the business that are non-performing. Since December last year the company has appointed a new independent chairman and directors and a new senior management team to take the business forward.

"Non-core and non-performing assets have been identified and an active recovery programme has made considerable progress in realising those assets corralled in the ‘bad bank'."

New equity had been introduced in December and March to enable the restructuring of the company to proceed.

"In spite of the enormity of the issues to be dealt with, the company continued to honour its obligations to depositors up until it made the decision to request the appointment of a receiver."

"South Canterbury Finance has enjoyed the support of its many loyal depositors and new depositors who have taken advantage of the attractive deposit rates offered by the Company.

"We welcome the steps by the Trustee and The Treasury to put in place an arrangement for debenture, deposit and bond holders to be paid their full entitlement to principal and interest regardless of their eligibility under the Crown Retail Deposit Guarantee Scheme.

"This is a very satisfactory arrangement for those investors and is recognition of their support for the company."

Maier says he was aware of the enormous challenge that lay ahead when he accepted the appointment of chief executive.

"It was always going to be a big task. I knew that, and the directors did too. But we thought that at the heart of the company there was an established business with a proud heritage that was worth saving and we have combined our skills with those of the company's dedicated staff in an endeavour to achieve that goal."

Maier says he, the directors, management and staff of South Canterbury Finance will be working closely with the receivers to help achieve the best possible outcome from the receivership.

"There are many people who have gone far beyond what might be expected to create a future for South Canterbury Finance. I thank them all for their contributions and, like them, will look back on our achievements accomplished in a very difficult environment for the finance sector and the economy."

Finance Minister Bill English will make a statement this afternoon, once trustee Trustee Executors has made a statement, according to a spokesman for the minister.

The Treasury is also expected to make a statement.

English delayed a trip to South East Asia by at least a day because of SCF's turmoil.

Before the announcement was made, chief executive Sandy Maier told Radio New Zealand the decision would surprise people, and that there would be winners and losers. He also said it will probably be misinterpreted and take several days before people realised what it meant.