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Strategic Finance sparks second review after boosting provisions

Friday 15th January 2010

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Strategic Finance Ltd, which missed its first payment to investors under the terms of its moratorium last week, has sparked a second review event with its trustee after boosting its provisions for bad loans.

In a letter to investors, chairman Denis Thom said “we have seen some of our larger lending exposures become more distressed as first mortgage lenders have moved to appoint receivers to undertake aggressive enforcement and recovery activity.”

The increase in uncertainty around Strategic’s ability to recover loans has prompted the board “to make a full provision for loss.”  

Strategic increased its write-offs and provisions for bad debt to $106 million in the first half of the 2010 financial year, boosting its forecast net loss to $86 million for the six months ended Dec. 31, compared to a loss of $32.8 million a year earlier.

The company reported full-year impairments of $146.5 million in the 12 months through June 2009.  

Thom said the increased provisioning also reduces the value of the company’s loan book to less than 75% of the principal monies owed to debenture holders, depositors and subordinated note holders. 

This was what sparked a second review event with trustee Perpetual Trust under the terms of its moratorium agreement.  

The finance company, which owes investors some 15,000 investors about $325 million, sparked its first review event after it missed making its initial payment to debenture holders on Jan. 7, though it was successful in repaying its $25 million facility with the Bank of Scotland.  

Chief executive Kerry Finnigan blamed the moratorium timetable for some of the company’s woes, saying debtors were aware of the upcoming payment and tried to use it to bargain down their own repayments to Strategic.

Finnigan has been winding down his hours with the firm few months to reduce his cost to the company. His salary was $550,000 in the 12 months through June last year.

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