Torchlight first to be repaid in SCF bailout

Business George Kerr's Torchlight Fund No 1 LP was yesterday repaid the $100 million it lent to South Canterbury Finance.

Conditions attached to the $100 million loan included that it be ranked above any claims by debenture holders.

Following the South Canterbury receivership announcement on Tuesday, the Government stepped in to quickly reassure South Canterbury investors they would all be paid a total $1.6 billion under its guaranteed deposit scheme, likely within about a month.

Receiver McGrathNicol was loaned a further $175 million in order to pay out first-ranked creditors, such as the Torchlight Fund.

While the Government decides how it will sell the assets, Mr Kerr is tipped as one of at least three parties interested in purchasing some of the more secure loans made by South Canterbury.

The big losers have been South Canterbury founder Allan Hubbard and his wife Jean, who tipped about $400 million in cash and company equity into South Canterbury to prop it up, while investors who purchased $100 million of tradeable preference shares in December 2006 get no pay-out.

Craigs Investment partners broker Peter McIntyre said the $100 million Torchlight loan would have been "imperative" for South Canterbury to continue trading, while it was negotiating with other potential equity partners to come on board.

What Torchlight charged in interest, and possibly fees, was unknown, but Mr McIntyre believed it would have been "well rewarded" for making the $100 million available.

Some of the funds may have been used to repay $138 million to a US investment consortium, which was able to trigger a call on its funds following a ratings downgrade by Standard and Poor's on South Canterbury; plus a later $21 million penalty payment.

In an explanation of why the Crown was repaying all of South Canterbury's prior-ranking debts, such as Torchlight, acting secretary to the Treasury Gabriel Makhlouf said in a statement it was done in order for the Crown to put itself first in line to be repaid by the company's receivers, behind those protected by statute.

"Without becoming the first-ranked creditor, there was a significant risk that the Crown would not recover as much for taxpayers as it could because of the scale and complexity of the South Canterbury Finance receivership.

By creating the conditions for an orderly and well-managed receivership, we remove pressure from the receiver and protect taxpayers interests," Mr Makhlouf said.

The total $1.775 billion pay-out is expected to be offset by asset sales but leave taxpayers losses of $600 million.

In a statement to markets yesterday, listed Pyne Gould Corporation, which has a minority investment on Torchlight, announced that the $100 million loan facility had been repaid in full.

The Torchlight Fund, which arranged the loan, had a minority stake in that loan facility which was overall backed by a range of domestic and international investors, investment companies, including specialists in credit and real estate private equity.

"Following the successful investment into South Canterbury it would continue to look for situations to provide funding," the statement said.