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Metropolis Subordinated Property Bonds - Incl Q&A

7 June 2001

Dear Investor

Metropolis Subordinated Property Bonds

Further to my letter to you of 27 April, I am sorry to have to tell you that repayment of the Metropolis Bonds was not made on the due date, 20 May. Interest is now accruing on the Bonds at the default rate of 19% per annum.

We have made demand for repayment on the Issuer and on Courthouse Capital Limited, the Guarantor of the Bonds, and have advised both companies that the provisions of the Trust Deed, under which the Bonds were issued, have become enforceable.

After my earlier letter to you, the Issuer advised us it wished to put a proposal to Bondholders to extend the time for repayment of the Bonds to May 2004. It sent an outline proposal to us on 18 May, but it did not contain any explanatory material and was not in an appropriate form for us to send to you for consideration.

In a discussion with the Issuer and its advisers on Thursday 24 May, we advised them that we considered Bondholders were unlikely to support a proposal along the lines indicated because it restricted the return that they might receive on the Bonds if, in the meantime, property prices improved. Last Friday we received a revised proposal, and some explanatory material, which addresses these issues and we are at present working through this. The Issuer will not be sending this proposal to the Bondholders until a new prospectus, which will be required, has been prepared and registered.

As the Bonds are now in default, we are able to take immediate enforcement action against the Issuer and the Guarantor. However, the situation is complex as the Metropolis property is not owned by the Issuer or Guarantor but by a company associated with them, Courthouse No 1 Limited, and it is subject to a first mortgage to the ANZ Bank. While the Guarantor holds a second mortgage over the Metropolis, and we hold a first debenture over the assets of the Guarantor, there is an agreement between the Guarantor and ANZ Bank, which is also binding on the Trustee as Debentureholder, which prevents the Guarantor from taking enforcement action under its second mortgage until ANZ Bank has been repaid in full or ANZ Bank consents to such action.

In the light of the proposal we have received, and the Issuer’s expressed intention to send it to Bondholders as soon as the necessary prospectus has been registered, we have not commenced any enforcement action under our securities. However, we are taking steps to verify the likely realisable value of the assets of the Issuer and Guarantor and the amount owing by Courthouse No 1 Limited to ANZ Bank so we can advise you as to whether you are likely to obtain repayment of your investment and the unpaid interest due to you. When we have this information, or there are any other significant developments, I will write to you again.

Over the last few weeks, a number of you have contacted us seeking further information and details about whether repayment of the Bonds is likely to be achieved and, if so, the likely repayment date. There has been a good deal of speculation in various media concerning the Metropolis. Attached is a sheet detailing the questions we have most frequently been asked and the answers that we have been able to provide as these may assist in answering any queries you may have.

In the meantime please be assured that TOWER Trust will be acting only to protect investors’ interests and will be seeking to maximise recovery of the amount of your investment.

Yours sincerely

Glenn Clark
General Manager, New Zealand

7 June 2001

Questions and Answers

Why can’t the Metropolis Bonds and the interest owed be repaid now?
Repayment of the Bonds and interest owed to you depends on selling the Metropolis apartments, penthouses and retail and commercial areas and leasing other spaces in the building. Unfortunately, not enough sales and leases have occurred and so the Bond Issuer does not have the money to repay the Bonds. Also the ANZ Bank has to be repaid first.

When are the Bonds and interest likely to be repaid?
Repayment depends on selling the Metropolis apartments and leasing other spaces in the building. Unfortunately, the property market in Auckland is depressed and sales are not occurring as rapidly as they have in past years. The leasing market is also very quiet. When the market picks up, it is hoped the apartments, penthouses and retail and commercial areas will sell, as the Metropolis is a high quality building in an excellent location.

How long will we have to wait for the market to pick up?
No one can give a definite answer, but the general view is that it could take about three years.

What plans is the Issuer making to repay the Bonds and interest owed to us?
TOWER Trust received a proposal in outline form from the Issuer about two weeks ago. TOWER Trust advised the Issuer that it considered Bondholders would be unlikely to support any proposal along the lines indicated, because it restricted the money they might receive if property prices picked up in the future. A revised proposal, which addresses these issues, was received from the Issuer last Friday and we are reviewing this at present.

What is likely to happen now?
The Issuer is working on a new prospectus which will be required for the revised proposal. Because of the complexities involved and tax considerations which need also to be addressed we know it will take the Issuer some time to complete this and have it approved. A Bondholders’ meeting will need to be called to vote on whether to accept the proposal and Bondholders will also be sent a Notice of this meeting with the other material.

What exactly is the role of TOWER Trust?
TOWER Trust is the trustee for the Bondholders and we hold the security and all other rights on behalf of all Bondholders. Our role is to protect the interests of all Bondholders in the Metropolis and to maximise recovery of your investment. Our role is spelt out in detail in the Trust Deed.

Does TOWER Trust guarantee the Bonds and/or the interest payments?
No. TOWER Trust is the trustee for Bondholders only. TOWER Trust has never guaranteed repayment of the Bonds or the interest.

Is anyone else owed money for the Metropolis?
Yes, the ANZ Bank has a first mortgage over the property and that mortgage must be repaid before the Bonds are.

How much is the ANZ owed?
TOWER Trust is taking steps to establish the amount owed to the ANZ.

How much are the Bondholders owed?
There are about 1700 Bondholders and they are owed $21 million for the Bonds and some $4 million in interest to date.

Will there be enough money to repay the ANZ, the Bondholders and the interest?
It is too early for us to answer that question precisely. We need to verify how much is owed to the ANZ and we need to value the assets that are to be sold or leased. When we have that information, we will be able to make a more informed judgment on whether Bondholders are likely to be paid their total investment and interest. In the end, of course, it will depend on the amount the assets can be sold for. What the Issuer is saying to us is that the longer it has to sell the assets, the better the sale prices are likely to be.

When will I get more information?
As soon as TOWER Trust has more information, we will write to you again.


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