In the short term, South Canterbury, which is in the throes of launching an urgent recapital- isation programme, has confirmed it has secured the $75 million loan through Torchlight Credit Fund LP, a fund administered by Perpetual Asset Management, which is a subsidiary of Pyne Gould Corp.
Torchlight was set up by South Island businessman George Kerr's Equity Partners Asset Management, which he sold to Pyne for $18 million recently.
Mr Kerr is Pyne's largest shareholder.
Torchlight raised the $75 million from a syndicate of New Zealand and Australian investors, which was arranged by brokerage Forsyth Barr, of Dunedin, understood in recent weeks to have been working hard behind the scenes to ignite support for South Canterbury.
South Canterbury, to steady itself in the face of growing bad debts, losses, debenture matur- ities and concerns over its related party lending, proposes to seek up to $75 million from private placement, more from a wider placement, and possible sale of dairy assets in the form of company shareholdings.
Last weekend, South Canterbury paid the first tranche of $US50 million owed to a consortium of United States investors who exercised their right to call in US100 million ($NZ $138 million), plus a $US15 million penalty, because of a Standard & Poor's rating downgrade in August.
In the longer term, the tie-in between Pyne Gould, which raised $270 million recently and paid down debt, and South Canterbury, could come from Pyne's subsidiary, Marac Finance, which it wants to take on a banking licence, Craigs Investment Partners broker Peter McIntyre said yesterday.
"There's been [general] talk of the emergence of a South Island bank. While Marac is known to be after a banking licence, there have been calls for South Canterbury to begin acting more like a bank," he said.
"Marac and South Canterbury [as a combined bank] would be a big operation," he said.
The $75 million Torchlight credit line, which has been fully drawn down, is likely to be relatively short term and possibly costing South Canterbury "double-digit interest" (more than 10%) as Pyne Gould "took its pound of flesh".
"There is a possibility Pyne's could take a stake in South Canterbury and make moves toward a merger or similar arrangement. They could see plenty of opportunity for an alignment."
He said "what may not be obvious" was the $75 million Torchlight fund had a "prior ranking charge", meaning the loan ranked ahead of all other obligations, including those to debenture and deposit holders.
"This prior ranking should offer a very high level of security to Torchlight," Mr McIntyre said.
Before taking on the Torchlight facility, South Canterbury had $34.1 million in existing prior ranking charges and now will have $109.1 million, with a capacity remaining of about $52 million, which the company could borrow against.
"Torchlight may well be the `fund of last resort'. But no-one else has stepped up to take the high ball," Mr McIntyre said.
Mr Kerr, in a statement for Torchlight Credit Fund, said "investments that are perceived to be too difficult for banks often create opportunities for fund managers. The fund has been established to focus on exactly this type of situation."
