Debts grow for failed groupDanny JohnMay 25, 2009THE debt...

Debts grow for failed group
Danny John
May 25, 2009

THE debt position faced by the receivers of the failed timber and cattle investment group Great Southern is set to blow out by a further $215 million as a result of an agreement the company had with its noteholders.

The additional liability will add to the $600 million already owed to its lenders, which have claims over two forms of funding - direct bank borrowings and a series of debentures - that are secured against the company's assets, primarily land.

But while the noteholders will be in a stronger position than shareholders, they will still rank behind the banks for recovery of their money as their investments are unsecured.

Under the terms of the notes called TREES 2 and 3 (Transferable REset Exchangeable Securities) that Great Southern issued in two separate fund-raising exercises in October 2004 and October 2005, the noteholders have the right to convert their investments into debt if the group is wound up, or appoints an administrator.

Great Southern went into administration just over a week ago after cash flow dried up and its banking syndicate withdrew its financial support. That move has allowed the noteholders of TREES 2, who paid $80 million for their investments, and those in TREES 3, who injected $124 million, to file a claim for repayment as creditors of the group.

Great Southern estimated in its annual accounts for last year - the last to be filed before its collapse - that it would be liable to pay the full amount of both issues, plus 5 per cent. That figure worked out at $215 million as of September 30 last year.

Large numbers of the TREES securities are held through nominee accounts with banks, including ANZ, JP Morgan, Citigroup, HSBC and UBS. But they also include individual investors, family super funds and institutional fund managers.

The noteholders had been warned of the deteriorating financial position of Great Southern at the start of last month, just five weeks before the company called in Ferrier Hodgson as administrator and the subsequent appointment by the company's banks of McGrathNicol as receiver.

In a move aimed at stemming the flow of cash out of the group, the directors told investors on April 8 that the forthcoming interest payment on the TREES 2 notes, due on April 30, would not be made and the TREES 3 payment would be delayed.