'In addition, the guarantee given by South Canterbury Finance in respect of the $27.5 million of convertible notes issued by Southbury Corporation Limited is secured by way of a prior ranking charge under the Trust Deed.'So, what that means is that the investors who invested in convertible notes of Southbury Corporation, which in turn funded an investment the same size in the ordinary shares of South Canterbury Finance, were NOT making a vote of confidence in SCF's prospects. Those investors are literally guaranteed their money back with interest of 10% p.a., secured by way of a prior charge over SCF's assets! Plus the chance to get a discount on the possible float of Southbury Corporation, Scales Corporation, Helicopters NZ, and/or South Canterbury Finance.
The rest of the disclosures from South Canterbury Finance appear to be mostly adverse in nature: errors in the accounts to 30 June 2009, disclosures of lack of independence in the valuation of assets (e.g. values determined by the company, its employees, and by firms that the beneficial owner was once a partner in), and that the company would post a loss in the 6 months to the end of 2009.
5 comments:
Hi David,
Prior to what exactly?
Simplistically, I am thinking that we have the following in order of descending priority (I've used 10s so you can insert between without ambiguity):
10) Secured Creditors (With charges over specific assets)
20) Debenture Holders
30) Bond Holders
40) Trade Creditors
50) Preference Shareholders
60) Ordinary Shareholders
So where does the $27.5m sit?
Thanks,
Alan.
Alan, good question!
The answer is basically 10) and 40), but for the 40) it is not in SCF but in Southbury Corporation, holds SCF and HelicoptersNZ and Scales Corporation. But the idea is that it will convert to 60) in Southbury Corporation, Helicopters NZ, Scales Corporation or SCF if any of these are floated on the share market. But the funds raised (well most of them) have been invested by Southbury Corporation into 60) of SCF. Quite a complicated scheme.
Alan, the 'Prior to' is prior to 20). This is the security of the guarantee SCF has given to Southbury Corporation convertible note holders.
Hi David,
So you are saying it now becomes:
10) Secured Creditors (With charges over specific assets)
15) $27.5m Convertible Notes
20) Debenture Holders
30) Bond Holders
40) Trade Creditors
50) Preference Shareholders
60) Ordinary Shareholders
So that means that the balance sheet is $27.5m up (cash) and for everyone below (15) in my list is has zero impact ($27.5m up and $27.5m down), but it adds security to the secured creditors (10)?
Thanks,
Alan.
Alan, the additional capital does actually help, as long as Helicopters NZ and Scales Corporation are not both insolvent or otherwise dealt with to disadvantage the note holders and SCF. The note holders rank the same as the Credit Fund facility, and they have security over the same assets as the trustee for the debenture holders, however their ranking is prior to debenture holders.
Actually SCF has less new capital than the amount it guarantees, probably due to fees or costs.
You are right that the impact is fairly ambiguous, I can't find an easy way to explain it. What I can explain is that it shows that informed investors were not showing any faith in SCF's solvency or prospects. Remember they were supposed to raise $40m but they didn't. They never said anything about any plans to use the prior charge security allowance, and they hid this detail from the public, and used the capital raising as a show of confidence, and boasted later that they got more debenture funding as a result, before revealing that they had to use the prior charge allowance to get even the smaller deal over the line.
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