Hanover freezes funds

By DAVID HARGREAVES - BusinessDay.co.nz | Wednesday, 23 July 2008

High profile Hanover Finance has become the latest  - and biggest - casualty of the finance company sector meltdown.

The company said late today it was to freeze about half a billion dollars of investors' money and start working on a "restructuring" plan.

Hanover Finance has 13,000 investors with $465 million worth of debentures. Additionally, United Finance - another company in the Hanover Group - has 2400 investors with $65 million in debentures. The combined total of more than $500 million makes Hanover the largest company to strike trouble ini the wave of finance company difficulties.

Bridgecorp, the previous largest, collapsed last year owing about $460 milllion.

Hanover, owned by entrepreneurs Eric Watson and Mark Hotchin, was the third-largest privately-owned finance company in the country. It had long been rumoured to be in difficulty and the rumours had only increased in recent days with it putting receivers into a high-profile Queenstown development.

A statement from Hanover said it continued to meet its trust deed obligations and had ongoing financial capacity to trade.

It was, it says "acting early" to preserve value in the business as market conditions continue to deteriorate and uncertainty mounts over borrowers’ abilities to repay as forecast.

Hotchin said "Against a backdrop of global credit uncertainties, falling property prices and lower reinvestment rates, the industry model has collapsed. Alternate financiers are increasingly unwilling to step in, and we’re also now starting to see borrowers trying to take advantage of the uncertainty to delay payments – further compounding the situation."

Hotchin and Watson had pledged continued support for the business and would also work closely with the trustees to deliver the restructure arrangement.

A detailed proposal would be presented to investors, targeted for late August but with the exact timing to be determined in consultation with the trustees – New Zealand Guardian Trust for Hanover Finance, and Perpetual Trust for United Finance and Hanover Capital.

"We are disappointed to take this action given that the business is still projecting a cash positive position. But, given the future uncertainty for the industry and the impacts now being felt by even the most well-established finance companies, we believe it is prudent to act early to preserve value for all,"  Hotchin said

Hanover's website had been down for much of the day, simply carrying a note that it was being updated, while calls to Hanover's offices were not being answered.

The news from Hanover takes the toll of collapsed or troubled finance companies to 26 in the past two years - with 23 of those in just the past 12 months.

The amount of money at risk through finance company problems has now sailed well north of $3 billion.

Hanover had assets at one point of over $1 billion but had reduced that to about $800 million as at the December half year.

It joins a recent wave of companies looking to undertake moratorium agreements.

These include Dominion Finance, St Laurence and Dorchester Pacific. OPI Pacific Finance has recently put a moratorium in place, while Geneva Finance recently restructured after a six-month moratorium.

Particularly following the collapse of Bridgecorp early last July, investors have been running scared of finance companies and seeking to get their money out.

It means that across the sector the companies have been trying to cope with a large outflow of funds and little if any new money coming in.