A credit crunch meteorite slammed into the sleepy town of Mildura this week, though nobody in the press seems to have taken much notice. I refer to the appointment of receivers over the country finance company Bidgee Finance Limited.
The decision to appoint receivers - on a superficial examination of the facts anyway - is absolutely baffling. Here are the facts as I understand them: Bidgee - in my experience - is a much respected finance company based in Mildura . Its principle lending activities include leasing, insurance premium funding and mortgage finance. Been going for fifty years. I have downloaded their half year accounts for December 2007 - get your copy from the NSX <http://www.nsxa.com.au/ftp/news/021719836.PDF> . These accounts have been reviewed by their auditors Deloitte and show profits at record levels, with a year on year increase in profit of 23%. Total assets were some $99 million. Their funding included a $45m loan from NAB, $18m in debentures and retained earnings of $17m.
Here is the vexing conundrum: apparently they have been flooded with redemption requests from their debenture holders. So the trustee of the debenture holders has appointed a receiver - Mark Korda. And Mark Korda has told the ABC that it will take several years to repay the debenture holders. So what exactly is the appointment of a receiver going to achieve? The debenture holders aren't going to suddenly get their redemptions - again it will take YEARS for them to get their money back. My insolvency mates estimate that KordaMentha would not be charging much less than $150K per month to run the receivership, and a figure much higher than this would not surprise. At that rate, the business's cash flow will certainly be negative. So shareholders will certainly see their value destroyed to some extent.
I have no insider information on what went on in the discussions that much have taken place between management, the NAB and the debenture holders. Nor have I seen the debenture agreement. But a cursory review of this matter has got me baffled.
The Cash Flow Ninjas
