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Geneva unveils its new survival plan

Monday 14th April 2008

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Geneva Finance is preparing to come out of its moratorium and is hoping that debenture holders will step up to help its recovery.

The company has failed to find a new investor for the company and is proposing debenture holders and subordinated note holders convert some of their investment into equity in the company.

It is asking that 15% of debentures and 55% of subordinated note-holders' investments convert to equity.

This deal, if approved, will significantly change the ownership structure of the company with the current. 100% shareholder, seeing its stake reduce to 25.4%.

If the deal goes ahead the conversion will see Geneva's equity position increase from $4.8 million to $27.5 million.

This provides "a strong equity ratio of approximately 18% immediately following the reconstruction. The equity ratio is projected to increase to 23% and 28% by September 2008 and March 2009 respectively," the company says.

The conversion will be made at a price of 36.49 cents per share. This is the projected net asset backing of Geneva's existing ordinary shares after the existing shareholder has accepted the full financial impact of branch closures, staff redundancies, the adoption of the new International Financial Reporting Standards (IFRS) and following a rigorous review of the quality of the company's loan book that has resulted in additional write-downs and bad debt provisioning.

Good news in the deal is that debenture holders are likely to get most of their money back. Geneva says that following the conversion of principal into ordinary shares, the remaining 85% of debenture principal will be repaid in semi-annual instalments, beginning with a 15% repayment in May. Another 40% of the outstanding debenture principal will be repaid by May 2009.

Geneva says that over the six-month moratorium period it has built its cash reserves to $26 million, paid interest in full on all investments and made changes to its lending criteria that has significantly improved asset quality. In addition to this it has reduced overheads by the closure of 21 retail branches and the retrenchment of nearly 150 employees.

BOS International (Australia) Ltd, the company's primary banker, has indicated its continued support but at a lower level. It says it will fund the business with a $35 million funding facility for a three-year term. This is $8 million less than the current arrangement.

Geneva is also proposing the company lists on the NZX Alternative Exchange (NZAX).

There is no news on this stage about what Standard and Poor's thinks of the proposal, but it is supported by Geneva's trustee, Covenant Trustee.

"The proposal is a positive and viable alternative to receivership, and demonstrates that we are able to manage our way out of the difficulties caused by the near-recession conditions of this market," Geneva chief executive Shaun Riley says.

"Receivership would be a poor option because of the devaluation of the loan book in the current market, and third-party investors are extremely wary of making commitments until the economic situation has stabilised. This proposal will ensure a positive outcome for investors, who can also be reassured by the support of BOS, and the additional disclosure regime of a NZAX listed company, which demonstrates the level of prudence and openness in our operations."

Investors are to vote on the proposal on April 28, two days before the moratorium ends.

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