Perpetual Trust chief executive Louise Edwards is warning of significant risks and uncertainty regarding the Allied Farmers proposal to take over the assets of Hanover Finance and United Finance.
There were three scenarios that Hanover and United investors needed to consider.
The first was that Allied Farmers' proposal was accepted by investors.
The second was investors voted against the proposal and continued under the current debt-restructuring arrangements.
The third was that the Allied Farmers proposal was voted against, but Hanover and its subsidiaries eventually went into receivership.
"Regrettably, no matter what investors collectively decide, there are significant potential downsides, risks and uncertainties for them in each scenario," she said.
In considering the Allied Farmers proposal, it was important to bear in mind the rural services and finance group's recent financial performance and financial position had been varied and its outlook was uncertain, despite the benefits of the transaction identified by Grant Samuel in the group's report - including increased equity, Ms Edwards said.
Hanover Finance's independent directors are recommending investors accept the $400 million all-stock takeover offer from Allied, calling the proposal "superior" to the status quo.
Ms Edwards said there was no certainty over what price the Allied Farmers shares would trade at and it was possible, especially in the short term, the share price might trade at a material discount to the price at which the shares were issued to investors.
Any upside was totally dependent on the market price of the shares received, and on any dividends, for which no projections were given.
However, the directors of Hanover Finance and United Finance had advised full repayment under the debt restructuring investors agreed to last year was unlikely, she said.
There had been a significant write-down in asset values since the vote and the forecast payout management now believed was possible had been reduced.
The timing of recoveries was also uncertain.
The third scenario was that the Allied Farmers proposal was voted down and Hanover and its subsidiaries defaulted, Ms Edwards said.
There were currently no defaults under the debt restructuring.
If the companies were to default, a potential outcome was that they would be placed in receivership.
In that scenario, and under the Allied Farmers proposal, the two principal shareholders, Mark Hotchin and Eric Watson, were relieved of their obligation to back investors with their $20 million pledge.
"In a market of falling property values, the outlook for investors is uncertain."
Ms Edwards said her letter aimed to provide an overview of the transaction and observations from the Grant Samuel report and to highlight Perpetual Trust's areas of concern and matters it believed investors should take into account when making a decision.
"Our role is not to advise investors on how they should vote.
"That is a question for investors, based on their individual circumstances."
Perpetual Trust sought to make sure investors had sufficient information to make a decision in their business interests.
It was a complex decision and a significant departure from what investors originally invested in.
It was also a shift away from the debt-restructuring plan investors voted for in December last year, she said.
• Perpetual Trust is trustee for the secured debenture stockholders in United Finance, the subordinated unsecured note holders in Hanover Finance and the secured bond holders in Hanover Capital.
At a glance
• Allied Farmers bids for Hanover Finance and United Finance assets.
• Deal worth $400 million, with 900 million new shares to be issued.
• Approval needed from 50% of Allied shareholders and 75% of Hanover and United investors.
• Perpetual Trust warns of risks and uncertainty.
