All that time and stress involved in deciding which way to vote, and whether to take the measly cash payout or remain in moratorium, may have been in vain. Fortress Credit Corp called in the receivers at Octaviar yesterday.

The full implications of this move are not yet known and will play out over the next couple of weeks. Here’s a brief background…

Octaviar owns 38.5 per cent of OPI New Zealand, which owns OPI Pacific Finance.

OPI Pacific Finance holds a “put option” issued by Octaviar, which essentially means Octaviar guarantees OPI Pacific Finance’s debts.

OPI Pacific Finance widely promoted this fact in its marketing to solicit deposits from investors, but for some inexplicable reason never exercised its rights under the put option when it could, despite having dud loans on its books.

Octaviar promised in August 2007, when many other finance companies were collapsing, to make good on any funding required by OPI Pacific Finance. It repeated its promise in December 2007.

Jason Maywald, CEO of MFS New Zealand (later Octaviar New Zealand) wrote to Vestar’s clients in December 2007 saying, “By this letter, we wish to inform you of MFS’ commitment to ensure that Vestar’s clients do not suffer any capital loss in relation to the receivership of Capital and Merchant.”

And later that month Vestar bragged, “Of all the advisory companies in New Zealand that have money invested with Capital + Merchant we alone were able to tell our clients that they would not suffer any capital loss from the receivership.”

They said they were working on a proposal for investors and strung us along for six months before finally admitting they were not able to issue any proposal.

Octaviar hit the rocks in January when its shares fell 69 per cent in one day on investor concerns about high debt levels. Its shares were put on trading halt on 21 January 2008 and have not traded since.

In February OPI Pacific Finance announced it had defaulted on loan repayments after Octaviar said it would not provide further support. Whereas OPI Pacific Finance could have exercised the put option previously, it now chose not to in order to protect its parent and stand a greater chance of recovering its money.

Shortly thereafter Octaviar sold 65 per cent of its tourism business Stella for A$409 million which allowed it to meet its short-term debts and keep its head above water. OPI Pacific Finance received $20 million from Octaviar in March.

In May OPI Pacific Finance investors approved a three-year moratorium plan.

OPI Pacific Finance made a damages claim for about $344 million against Octaviar in June, saying Octaviar had breached the terms of its management contract, resulting in losses for OPI Pacific Finance.

Octaviar New Zealand and Vestar finally admitted in June that they were not able to put together the proposal promised since December to ensure investors “suffered no capital loss in relation to the receivership of Capital and Merchant.”

Last week the majority of Octaviar’s creditors, OPI Pacific Finance investors included, voted in favour of entering into a structured debt arrangement with Octaviar.

This allowed Octaviar to fend off the Public Trustee of Queensland’s attempt to place it into receivership and on Saturday it was placed into voluntary administration by its board. By staving off bankruptcy, Octaviar planned to work its way through its debt in an orderly fashion and deliver a better outcome than a liquidation.

But US vulture fund Fortress Credit Corp, which is known as a lender of last resort and is owed $60 million by Octaviar, yesterday appointed receivers “in response”.

However, receiver Stephen Parbery said his appointment did not necessarily signal Octaviar’s demise. “We are not working at odds with the administrators, we are working with them,” he said. It seems that Fortress simply wants to protect its interests in Octaviar.

Perhaps things are not quite as grim as the alarmist article in this morning’s NZ Herald. To give the Herald credit though, they did speak to OPI Pacific Finance’s trustee, Louise Edwards of Perpetual Trust, who said OPI Pacific’s prospects were fairly dim. They report her as saying that, “Appointing receivers to OPI Pacific to look after its interests in Octaviar is … likely to be the best option.”

Goodness me, who knows how this sorry saga will play out. Octaviar seems to lurch from one crisis to the next. I’m sure they’ve used up more than their nine lives already.

We’ll keep you posted as we learn more.

If you have any questions or comments, please leave them in the “Between a rock and a hard place – the OPI Pacific Finance decision” article as this article is closed for comments.

This entry was posted on Tuesday 16th September 2008 and is filed under OPI Pacific. Both comments and pings are currently closed.