Capital+Merchant Finance failure – Have the sub-prime problems hit NZ?
Capital+Merchant Finance, which has been placed in receivership by Fortress, is the first sign that the sub-prime problems may have spread to New Zealand. The latest Capital+Merchant prospectus shows that the finance company had a $14.3 million loan from Fortress Credit Corporation (Australia) on 31 March 2007. This was due to be repaid on 5 October. Fortress is owned by Fortress Investment Group, a New York Stock Exchange listed company that specialises in a number of activities including the provision of customised financing solutions to corporate, real estate and asset-based borrowers. Fortress’ share price has fallen from a post-IPO high of US$37.00 in February to US$17.25 as concerns about sub-prime problems in the US have escalated. The Fortress loan facility had a prior charge over the assets of Capital+Merchant. This is unusual as most finance company wholesale funding lines rank pari passu (equally) with other lenders. No other medium to large-size finance company appears to have granted a prior charge to a wholesale lender. In addition the weighted average effective interest rate on the Fortress facility was 13.0% compared with 9.5% for retail debentures. Fortress has a good reputation and the decision to put Capital+Merchant into receivership would not have been taken lightly. It indicates that the failed finance company had fairly serious problems. It also shows that organisations that give a prior charge over wholesale facilities are in a more vulnerable position than those that rank all borrowings pari passu. Capital+Merchant is the eleventh finance company to be put into receivership since May 2006 and it is the third largest in terms of amount owed. Unfortunately the latest collapse shows that the finance company sector continues to have problems. Finance Companies in receivership in 2006 & 2007 Receiver appointed Receiver Trustee Owing ($m) Investors 9/5/06 PWC Covenant 25 2,000 30/5/06 PWC Perpetual 340 11,000 3/8/06 FH Covenant 48 3,000 2/7/07 PWC Covenant 488 14,500 20/8/07 PWC Perpetual 167 7,000 29/8/07 FH Covenant 80 4,000 29/ 8/07 PWC Covenant 51 2,100 4/9/07 PWC Perpetual 19 1,000 6/9/07 PWC - 16 400 4/10/07 BDO Covenant 15 500 29/11/07 GT Perpetual 190 7,000 1,439 52,5000 PWC is PricewaterhouseCoopers, FH is Ferrier Hodgson, BDO is BDO Spicers and GT is Grant Thornton Brian Gaynor, 30 November 2007
National
Provincial
Western Bay
Bridgecorp
Nathans
Property Finance
Five Star Consumer
LDC Finance
Finance & Investments
Clegg & Co
Capital + Merchant
Total
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