The finance company meltdown claimed its 25th and biggest scalp yesterday when Hanover Finance froze repayments to 16,500 investors owed more than half a billion dollars.
The Eric Watson and Mark Hotchin-owned company claimed it had "the size and strength to withstand any conditions", but was heavily exposed to the crumbling property development market and dependent on retail debenture funding which has now largely dried up.
"The market conditions have deteriorated dramatically," Mr Hotchin said yesterday.
"It's a combination of the collapse of the financial markets and the whole system, the collapse of other substantial finance companies which has affected our reinvest-ment rates pretty dramatically, and the inability of people with even good projects to refinance or sell to be able to repay us in a timely fashion."
Hanover had been hurt by developers who were unable to repay loans, Mr Hotchin said.
Two weeks ago, Hanover placed developer Dave Henderson's $2 billion Five Mile project in Queenstown into receivership over an unconfirmed $70 million debt after loan payment defaults.
Hanover was reported to have security over development land near Queenstown Airport worth more than $100 million.
The suspension of capital and interest repayments effective yesterday, along with a freeze on new investments, would enable the business to be "managed in a measured way as it works through a restructure plan to allow investors to be repaid over an agreed time period".
The arrangement also applies to investments with Hanover Finance subsidiary United Finance, and sister company Hanover Capital.
Hanover Finance owes about $465 million to 13,000 debenture investors, while United Finance owes $65 million to 2400 and Hanover Capital $24 million to 1100 holders of secured preferential bonds.
The repayment freeze and restructuring proposal does not apply to Hanover's consumer finance subsidiary FAI Finance.
With a total of $554 million in investors' funds at stake, Hanover is bigger than Rod Petricevic's Bridgecorp, whose collapse last year triggered a second round of carnage among finance companies.
Mr Hotchin yesterday said Hanover's owners, board and management had been battling for the past eight months to keep the company afloat and had been hopeful of doing so until Dominion Finance, St Laurence and Dorchester Finance struck difficulties in quick succession in recent weeks in a third wave of casualties.
Hanover required a reinvestment rate of at least 40% to remain viable. However, "since those companies went, the numbers dropped quite significantly below that.
"Each day that goes by the news is worse and the confidence is worse. There's just a systemic collapse of the industry and you just can't fight against that."
Mr Hotchin said Hanover was "still projecting a cash-positive position".
"But, given the future uncertainty for the industry and the impacts now being felt by even the most well-established finance companies, we believe it is prudent to act early to preserve value for all."
He and Mr Watson had pledged "continued support for the business and would work closely with the trustees to deliver the restructure arrangement".
Mr Hotchin said that support would be financial but he refused to confirm it would take the form of an injection of fresh capital.
A detailed restructuring proposal would be presented to investors probably in late August.
