New mortgage trust launches
14 June 2006
News release from Praesidium Asset Management
New mortgage trust launches
Praesidium Asset Management has launched a $27 million fixed interest offering under its mortgage trust format that follows on from its earlier offer in 2002.
The offer is of secured Notes issued by Diversified Mortgage Trust No.1. The Notes are offered in two classes:
* $12 million Class A
Notes, which are first ranking and mature on 30 November
* $15 million Class B Notes, which are second ranking and mature on 31 December 2008.
A further $3 million of Class C Notes will be issued and acquired by Capital+Merchant Finance, one of New Zealand’s leading property financiers. These rank after the Class A and B Notes.
The Notes pay interest quarterly in arrears and are currently offered at a minimum fixed rate of 7.85%pa for Class A Notes and 8.65%pa for Class B Notes.
The monies raised will be invested in loans secured by mortgages. These loans (or participatory interests in them) are to be acquired from Capital+Merchant Finance under an exclusive arrangement. Funds not invested in mortgages will be invested in bank securities, government bonds or similar.
The Notes are secured by a charge over all Diversified’s assets, for the benefit of all Noteholders in their order of priority (subject to the prior claims of the Trustee, Diversified’s manager and any receiver for their outstanding fees and costs). In addition, all mortgage investments will be transferred into the Trustee’s name.
Praesidium and Diversified have no corporate relationship with the mortgage originator, Capital+Merchant Finance. "While we have a close working relationship with Capital+Merchant, Diversified’s Board has a clear duty to maximise value so that Diversified is able to fulfil its Note obligations," Mr Stephen Maud, a director of Diversified, says.
Loans are acquired subject to strict criteria. The key limitation is that at least $12 million of loans must be secured by first mortgages that have a loan to security value of no more than 50% and $15 million must be secured by first or second mortgages that have a loan to security value of no more than 66.66%.
In addition, the loans are the subject of a Mortgage Indemnity Policy issued by certain syndicates at Lloyd's of London that covers loan principal losses (in the unlikely event that such losses were to occur).
Praesidium Asset Management is the manager of Diversified and promoter of the Notes issue. Praesidium was established four years ago and managed in total $30 million of monies similarly invested by Bridgecorp Mortgage Trust No 1. In addition, Praesidium’s directors (Mr Maud, Mr Ronald Diack and Mr Jack Porus) were also the directors of BMT Management, which managed Bridgecorp Mortgage Trust No 2’s $30 million mortgage portfolio which was funded by a similar Notes issue.
Mr Maud has more than 25 years' experience in the finance industry. Mr Diack is a corporate financial consultant based in Wellington, and a former head of corporate banking with Bank of New Zealand. Mr Porus is an Auckland commercial and company lawyer with particular experience in commercial property.