Debt deal halts Sentinel lending
Reverse equity mortgage company Sentinel has been put into "suspended animation" through a debt restructuring which has cost the company a pretty penny.
Seniors Money International, the company behind the Sentinel brand, has paid $8.1 million in a settlement with giant international insurer Hannover Re to settle a debt of nearly $75m, and has managed to get Commonwealth Bank of Australia to give it a seven-year funding extension.
But despite that, the company has no new money to lend and so has ceased offering new reverse equity loans until it can secure new funding.
Reverse equity mortgages are loans taken on by elderly householders to free some of the equity in their homes. The sum borrowed plus accrued interest is paid back when they die or decide to leave their house voluntarily.
Until the global financial crisis put an end to easy funding, it was predicted to be a boom business.
Indeed, Sentinel was being prepared for a public offering, and was thought to be worth more than $1 billion.
Sentinel, which was founded by Sovereign and Partners Life founder Chris Coon, was a world leader, and opened operations in Australia, Canada, Spain and Ireland. In New Zealand it was by far the biggest operator, with more than $500m of loans here, and has proved more durable than Bluestone and Property Finance Securities, both of which ceased offering reverse equity mortgages soon after the GFC struck in 2007.
The Irish and Spanish businesses are now gone and the loans sold, but the core New Zealand and Australian businesses have been preserved.
That has come at a cost, though.
The company was due to have paid $74.6m to reinsurers at the end of March, but was able to settle with Hannover Re by paying a sum of $8.1m.
That does mean, however, that the company is no longer covered by "negative equity treaties", which were there to prevent the company from making losses on loans, should the amount owed to them be worth more than the value of the homes against which they are secured.
The change will not affect borrowers and, as the average loan to value ratio of Sentinel's loans is 23 per cent, negative equity remains a remote possibility.
The company has also managed to get a seven-year extension to loans from Commonwealth Bank of Australia, which otherwise would have been due for repayment in September.
But a condition of the lending is that no new loans are made, leaving Sentinel able to make advances only to existing customers.
Under its banking agreements, Sentinel is "technically insolvent" as it has now slipped into negative equity, but managing director Vaughan Underwood said the restructuring had stabilised Sentinel, and the company was actively seeking debt funding so it could start making new loans.
With the $1.23 billion CBA loan secure until 2019, Underwood said Sentinel now needed new debt funding facilities to begin new lending, for which there was clear demand.
On the timing of establishing new funding, Underwood was optimistic. "I'm hopeful it will be sooner rather than later.
"The locking up of the warehouse for seven years has been a fantastic thing for us. It is suspended animation until we can get some new funding," he said.
- © Fairfax NZ News