Hanover Finance directors have, not surprisingly, unanimously recommended that all classes of investors vote in favour of the Allied Farmers proposal which will see Allied take over the assets of the troubled finance company.
Craigs Investment Partners broker Chris Timms said the recommendation came as no surprise, given there were no alternatives.
"They can recommend all they like but I am not sure investors will be that keen on the deal. But what choice have they got?"
A deal with Allied would let the directors off the hook.
As soon as investors accepted, the buck would pass from the Hanover directors to Allied directors.
Then it would be up to Allied directors to deliver a return on the assets, he said.
Hanover chairman David Henry said the recommendation followed "careful review" of Hanover, United and Hanover Capital's forward cash flow projections, the content of the Allied Farmers proposal and the Grant Samuel independent expert report.
"We are of the view that Allied Farmers has the potential to add real value enhancement to the Hanover and United loan and property assets that is not possible under the debt restructure plan [DRP] currently in place."
Mr Timms said the Allied proposal would turn natural holders of debt into holders of equity, something that would make some Hanover investors uncomfortable.
But, at least, if they went with Allied Farmers, they would get some liquidity and more transparency, as Allied was a listed NZX company, he said.
The Grant Samuel report said the Allied Farmers proposal was superior to the status quo and that there was a high risk of a Hanover Finance receivership.
In an independent report being sent to investors, Grant Samuel said an alternative cash offer for Hanover was a remote possibility, and if it were to come about from another party it would be at a substantial discount to the current book value.
For all intents and purposes, the proposal from Allied Farmers is a backdoor listing of Hanover.
Debt instruments of Hanover are converted to equity in Allied Farmers, with Hanover investors owning 97% of Allied Farmers at completion of the proposed transaction.
In December 2008, Hanover investors approved a debt restructure that involved a suspension of interest and principal payments.
Last month, investors were advised that full repayment under the plan was no longer likely.
Then Allied Farmers put forward its plan.
Allied Farmers shareholders are to vote on the proposal on December 8 with a 50% threshold for approval.
Hanover investors start voting on Thursday in Hastings, and will finish on December 11 in New Plymouth, with a 75% threshold for approval in each class of investor.
After instituting the debt restructuring, Hanover was effectively undertaking a managed wind down of its loan book to meet its repayment obligations under the debt restructure.
It was not taking new deposits or making any new loans, Grant Samuel said.
"In Grant Samuel's opinion, barring a significant recovery of the finance and property sectors in New Zealand, continuation of the debt restructure is more likely than not to ultimately end in the receivership of Hanover," the report said.
The threat of receivership was not good for the day-to-day management of Hanover or for the likely realisable value of the remaining securities.
The transfer of Hanover's performing loans to Allied Finance would strengthen its balance sheet and assist, but not necessarily assure, Allied Nationwide of obtaining a credit rating, which was required to participate in the extended Crown retail deposit scheme, Grant Samuel said.
Allied Nationwide's ability to obtain a satisfactory credit rating was by no means certain, the report said.
Grant Samuel noted that a $20 million package supported by guarantees from Hanover shareholders Mark Hotchin and Eric Watson fell away if the proposal was implemented.
"However, it is important to note that the personal guarantees also fall away in the event of a receivership, which is an increasing likely scenario," Grant Samuel said.
