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Hanover in trouble

Wednesday 23rd July 2008

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Hanover Finance has suspended acceptance of new investments and repayment of existing deposits as it worked with trustees on a plan to restructure the business going forward.

Hanover Finance, which continues to meet its Trust Deed obligations and has ongoing financial capacity to trade, says it is acting early to preserve value in the business as market conditions continue to deteriorate and uncertainty mounts over borrowers' abilities to repay as forecast.

Shareholder Mark Hotchin says: "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 fellow shareholder Eric Watson have pledged continued support for the business and will also work closely with the trustees to deliver the restructure arrangement.

Hotchin says the suspension of capital and interest repayments, effective today, will enable the business to be managed in a measured way as it works through a restructure plan to allow investors to be repaid over an agreed time period. The action also applies to investments with Hanover Finance subsidiary United Finance Limited, and sister company Hanover Capital Limited.

A detailed proposal will 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 says.

"Hanover Finance is now becoming caught up in this widespread uncertainty around borrowers' ability to meet their obligations. In this environment, we think it's sensible to take some time to work through all this in an orderly way. It also gives us more time to realise value from all borrowers," Hotchin says.

The Hanover Finance book comprises approximately 13,000 investors with $465 million in debentures. United Finance has around 2,400 investors with $65 million in debentures. And Hanover Capital, offering secured preferential bonds, has around 1,100 investors with $24 million worth of bonds.

As a consumer finance business FAI Finance Limited, which is also a Hanover Finance subsidiary, is not proposed to be included in the restructure.

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