MFS Pacific Finance sues Octivar for $340m – the end gets closer
A BusinessDay.co.nz report says that ailing MFS Pacific Finance is suing its parent company in Australia for A$270 million ($340 million) alleging a breach of management contract by its parent company, leading to massive losses.
The New Zealand-based finance company, recently renamed OPI Pacific Finance, entered into a moratorium arrangement just last month with its 12,000 Kiwi investors – collectively owed over $310 million.
The investors have had their money frozen since January after the parent company withdrew previously provided support. They did get $20 million as an immediate payment after entering into the moratorium.
However, the moratorium depended on the survival of the embattled parent company Octaviar – formerly MFS Ltd. Since the moratorium was entered into a number of Octaviar’s creditors in Australia have taken action against the company.
Now OPI Pacific Finance has joined in.
The claim for damages from Octaviar is related to the parent company’s management of the Pacific Finance loan book. A Pacific Finance spokesman said it was believed Octaviar had breached the terms of its management contract, resulting in losses for Pacific Finance.
The spokesman said the legal action would not have any impact on the moratorium, which would continue.
Details of OPI’s $446 million worth of loans outlined in the moratorium documents showed vast exposure to the subprime market – contrary to what had earlier been indicated.
The losses on the loan book were such that Pacific Finance investors would get less than half their money back if the Pacific Finance went into receivership.
The documents showed that only 13 per cent of loans had first ranking and the vast majority of the loans were advanced on a loan-to-value ratio of 80 per cent or more.
In addition, vast sums had been channelled through Octaviar, with about $167 million funnelled through a “loan securitisation vehicle”.
“The loan book position is disappointing and investors will no doubt be very disappointed with it,” Pacific Finance’s chief executive Jason Maywald said last month.
At the time he put the state of the loan book down to general economic factors, a downturn in the Australian property market and an issue around the “origination of the loans by Octaviar in Australia”.
“Octaviar’s a large organisation. They were responsible for the origination and management of the loan book and the financial management of the company. And as a director I received information and reports and asked questions … and some of the things that I know now today I didn’t know in December or even in the beginning of January,” he said.
A “creditor update” issued by Octaviar today showed that the beleaguered company now faces claims approaching A$1 billion, meaning its survival must be in huge doubt.
Its only significant remaining asset is a 35 per cent stake in property and travel group Stella, which among other things owns the Gullivers Travel Group in New Zealand.
A report by The Mole from Businessday.co.nz
John Alwyn-Jones
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