The choice for Hanover investors: Receivership or Allied Farmers?

Hanover investors face two choices: receivership or the Allied Farmers deal. Depositrates.co.nz compares the pros and cons of each option.

Monday, 30 November 2009

The choice for Hanover investors can be boiled down to two options: receivership or the Allied Farmers' deal.

Grant Samuel says in its independent report that if Hanover continues under its moratorium, or debt repayment plan (DRP), it is "more likely than not to ultimately end in receivership."

It says Hanover has insufficient assets to meet its obligations under the plan.

Grant Samuel says the value gap between the two is reducing and a key difference is the shareholders' support package which was agreed to with the moratorium last year.

That package saw shareholders Mark Hotchin and Eric Watson put in cash and assets valued at $96 million.

With the down turn in the market the property part of the package is now valued at $44.5 million, and there is still a $20 million, uncalled cash pledge, bringing the total to $64.5 million.

Half of this pledge can be called, if required, at the end of this year to make the next payment to investors. If the company makes the next payment using its own funds, then that $10 million pledge component lapses.

Grant Samuel says the value gap between the moratorium and receivership further narrows when the net present value of payments likely under the repayment plan is compared with receivership.

"The key differences between a continuation of the DRP and receivership are the likely to be the timing of cash flows and the costs associated with a receiver. In Grant Samuel's opinion the difference between the two scenarios is minimal."

It says a receivership will be costly while the Allied proposal is a longer term play which has more chance of greater loan recoveries than recievership.

"Grant Samuel believe that a managed realisation of the loan assets by Allied Farmers has the potential to produce greater value to investors than under a receivership where the receiver will look to maximise price over a shorter term."

Receivership fees would be substantial. It is estimated fees could be around $2 million in the first year to December 2010, $1.5 million the following year and $1 million a year in the third and subsequent years.

The good news for investors is that, according to Grant Samuel, investors haven't lost any additional value by choosing the moratorium last year, rather than opting for receivership.

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