Strategic may be sinking

The agreement for HBOS to invest in, and double its credit line to, Strategic Finance has hit some kind of unspecified, but significant snag. It appears that HBOS is not, yet, pulling out of the deal into the New Zealand financier, but it looks like HBOS is now willing to inject capital into Strategic on terms that trample on the rights of existing investors.

Strategic yesterday joined a long list of New Zealand finance companies and suspended redemptions of its secured debenture stock and subordinated notes.

This development was a surprise given that three weeks ago management of Strategic said that HBOS, through BOS International, planned to fund a management buyout of the firm. (The current owner of Strategic is Allco HIT, one of the listed arms to the distressed Allco Finance Group.)

In July Strategic said HBOS will double its credit line to the firm to NZ$150 million. The plan was also for BOSI to take an initial shareholding of 19.9 per cent in Strategic, and "with the ability to increase to 49 per cent".

Strategic yesterday said the talks with BOSI were "ongoing", but said the proposal would now "involve a capital restructure … [that] will have to be considered by security holders of debenture stock, subordinated notes and perpetual preference shares."

BOSI presumably wants greater security over the new loan it plans to extend than is compatible with the trust deeds governing the debentures and other investments.

Strategic may clarify the terms of the proposed restructure today.