Wellington Capital PIF/Octaviar (MFS) PIF

[Wolfgang]

Re: Octaviar MFS Premium Income Fund PIF

Hi
We are also investors in the MFS Premium Income fund and did not put all your eggs in the 1 basket, but this still dose not help much for we relied on the income stream fore the weekly living expenses.

I am sore that their are many more in worse situations than this.

We got letters from Octaviar every month, the letters did not outline the seriousness of the problem. I have now Google News Alert for Octaviar and found the problem is much much worse then they clamed.

For now we are still hoping for a successful outcome but not holding our breath, we are back at work for an extra five years or rely on the government pension, I hope we will still be able to enjoy our retirement.

How many eggs will it tack to insure that it will not happen again and will we be able to look after all the eggs?

How long will it tack before the ASIC and other government bodies to do some thing so this dose not happen again?

Thanks for nothing OCTAVIAR
Wolfgang

 

[scott francis]

Re: Octaviar MFS Premium Income Fund PIF

Thanks for the comments to date, and the additional material. I am involved in the Eureka Report, writing articles for them.

I had planned to focus this article on the poor quality of disclosure of borrowing around the PDS, and the ridiculous loan to Living and Leisure Australia. I also want to make comments about the 'capital protection mechanism' - a big part of the marketing but the reality was that it was simply not disclosed.

I have attached the article last written about the MFS Premium Income Fund (from May 12). I have tried to make it very small font so as not to take up too much page. Feel free to delete it if it stuffs up too much of the thread.

Cheers
Scott

The MFS Premium Income Fund was a key fund of the MFS group (since renamed Octaviar). The name implied it offered investors (including NSW Bookmakers Super) a strong income stream, presumably so that they could sleep comfortably at night. An investor update from November 2007 showed that the target rate of return was 9% a year for a 24-month investment. The fund was popular and had more than $770 million of unit-holder funds.

Lots of funds have reassuring names such as "cash plus" or "income" (even "premium income"), and the troubles the MFS Premium Income Fund got itself into is a reminder that investors should understand what is happening in every investment. Underlying the MFS fund was a small minority of cash and fixed interest investments; the majority assets were a series of property and "asset backed" loans.

The NSW Bookmakers Super Fund invested an estimated 8% of its members' money in MFS. The investment rating company Lonsec assessed the MFS Premium Income Fund as "investment grade"; in a fund review, although to be fair that was a review done about 18 months ago, in October 2006.

A key characteristic that investors should understand about the MFS Premium Income Fund is that it borrows to invest, something investors should treat with caution. As soon as a fund borrows to invest it increases its underlying risk. Borrowing to invest has been a considerable problem for the fund - earlier this year it defaulted on its loan, a $184 million facility that was payable to a third party bank.

The loan was repayable on demand as at December 31, 2007. This is where the fund started to struggle, and a series of letters to investors in the Premium Income Fund slowly highlighted the extent to which the fund was in difficulty.

A letter dated January 29, 2008, said that due to an "unprecedented" level of volatility in investment markets, no investors would be allowed to redeem their investment in the MFS Premium Income Fund for the next 180 days, adding that the fund "expects to continue paying distributions at the target rates".

This expectation about paying distributions seemed optimistic given that MFS Premium Income Fund managers should have known they were in default of the $184 million loan. It seems unlikely that any reasonable bank that was owed $184 million would say, ?Sure, we are owed a bunch of money and you have defaulted on the terms of the loan, but we are happy for you to keep paying distributions to investors while we wait for our money'. Banks tend not to work that way.

And they didn't. In another letter to investors on March 19, the fund advised investors it was in default on a loan and that "under the terms of the standstill agreement with the bank" the MFS Premium Income Fund was not permitted to pay distributions to unit-holders without the approval of the bank.

And just when MFS Premium Income Fund investors felt it was safe to go back to their letterbox, a letter dated the April 14 announced that redemptions had now been deferred to 360 days "as stated in the Fund's constitution", and that ?unit-holders will not receive interest payments during the period of the cessation, nor will any interest accrue".



So what is the cost to investors such as the NSW Bookmakers Super? As at February 29, an "investor update" listed the gross assets of the fund as $890.1 million, the loan of the fund at $184 million and the number of units on issue in the fund at 755.2 million. This gives a value per unit of 93 ¢, effectively a 7% loss on a $1 application price. Investors have now been without distributions for three months. Based on a 9% distribution, this is a "loss" of 2.25% (a quarter of 9%) - bringing the total "loss" to date to nearly 10%. Keep in mind that a good term deposit is currently yielding above 8%, so any money tied up in the MFS Premium Income Fund could be earning that in a low-risk term deposit with a bank.

A blatant example of a conflict of interest was the widely reported February drawdown on the unsecured $66 million loan facility made by the MFS Premium Income Fund to Living and Leisure Australia (a MFS/Octaviar subsidiary, whose primary activities are owning and operating ski fields, aquariums and property development).

The MFS Premium Income fund had already told investors that redemptions had been ceased; its managers should have known that the fund was in breach of the bank loan, and yet they (apparently) still thought the best way forward for investors in the MFS Premium Income Fund was to lend more money to Living and Leisure Australia, a company that had breached its own loan agreements in September 2007 (that is, Living and Leisure had already defaulted on the debt it owed).

The loans to Living and Leisure Australia are primarily in the form of unsecured loans, which means the investors in the MFS Premium Income Fund wait at the back of the queue behind all the secured creditors if Living and Leisure Australia collapses.

MFS/Octaviar Premium Income Fund investors - or anyone whose super fund was involved in this investment - should be furious about this misuse of the $66 million unsecured loan facility to prop up the Living and Leisure Australia trust.

The results suggest that the MFS Premium Income Fund was a risky fund. It borrowed money to invest. It invested in many related-party loans and tried to pay an ongoing income stream to investors while investing in assets that did not pay regular interest. All in all it stands as a good reminder that investors need to understand what is happening in their fund rather than assume that reassuring name like "premium income fund" provides any promise about risk and return.

Through all the "investor updates", investor letters, media articles and ASX announcements that I read, I could not find one that said that MFS/Octaviar had stopped taking fees from investors. Surely that is the ultimate insult: having to pay for that sort of "investment expertise" when you can't even get your money out of the fund!

 

[breaker1]

Re: Octaviar MFS Premium Income Fund PIF

The following information has been sourced from an investor in the OPIF who has access to OPIF management - being a third party source, make of it what you will:
* Jenny Hutson plans to take up the Responsible Entity (RE) position within a week or two
* Price Watehouse Coopers will be employed to assess the exact balance of the fund + or - The PWC bill will be paid by OCV LTD not OPIF - why? - apparently Jenny negotiated this. Regardless Jenny has a very good idea of the OPIF debt
* The OCV LTD 50 mill support facility may not be accessed by the OPIF if Jenny does not act quickly
* Find another bank to take over the remaining debt to RBOS so as to free up the RBOS contractual hold off the fund
* Will be trying to hold information forums at least in Sydney, Brisbane, Melbourne (possibly other areas of investor concentration) - investors off course invited - planned for first week of July
* There are approx. 54 areas where OPIF has it's money
* That negotiations are taking place to forestall Octaviar LTD from going into receivership.
* That the original amount of the loan from RBOS was $200 million and that when OPIF reached the default %, 16 mill cash was demanded and received by RBOS, leaving $184 mill remaining (readers would be aware this has been reduced considerably since then - possibly only $64 mill remaining - but of course that would be contributing to our investor shortfalls in any redemptions)
* Jenny understands that investors want distributions to be re-instigated ASAP - but did not commit to a time
* Another name change for the OPIF (WCPIF i guess)
* Jenny has an agenda to list the renamed OPIF on the ASX, but this will be a long way down the track. Probably in association with existing WC assets
* Jenny could not answer why other companies wanting the RE of OPIF were NOT given a go
* OPIF/Jenny plan to get maximum cents in the dollar back for investors who stick it out with her company.
* Possibly a press release on some of the matters mentioned above
* WC plans to give investors a written, black and white, copy of the finances of the PIF - possibly at the forums.

My first thoughts are that Jenny Hutsons Wellinton Capital should make a reasonable, genuine and substantial offer to OPIF investors and OPIF management, before taking up any RE management rights, to buy out any existing OPIF debt. This to me would simply be par for the course for any company wanting RE rights. I read how other companies (Packer) wanting RE rights absorb debt. Why not WC in OPIF?

If Jenny can access the OCV LTD 50 mill support facility, why can't Guy Hutchings the OPIF CEO?

Another name change - here we go again - just leave the PIF in their as an anchor!

I am pleased that a time commitment is being made for OPIF transparency by Jenny, at last! But if Jenny knows the OPIF debt very well - why not release it now, why wait till early July? The main reason why investors are anxious, is quite simply because they don't know, and are invisaging worst case scenarios. Investors need to have closure on OPIF debt amounts ASAP.

In the mean time, the Octaviar PIF Action Group will continue towards the 100 required (and beyond) and consider what will be best for investors.

Open for discussion......

 

[selciper]

Re: Octaviar MFS Premium Income Fund PIF

No doubt we will be asked at the "forums" to skip the past and get on with the future. Previous boards will be blamed for the present paralysis. The past MUST be discussed and the present PIF CEO made available on the podium to answer any questions.

We musn't allow ourselves to be sidetracked any longer.

I was told in a phone call to PIF a week or so ago that RBOS would be paid off by the end of July. Is this a fact?

 

[seamisty]

Re: Octaviar MFS Premium Income Fund PIF

Selciper, It is my understanding that the extension of the loan from the RBOS was only until the end of July. Hopefully the Arctic Capital deal for LLA will go ahead and that should just about sort it. It would be nice to get the $50 million Support facility from OCV as well. Great to see some information being released, hopefully some positive actions regarding distributions will not be far away. Amazing what we can acheive with two thirds of an action group, our voice can only get louder!! Thanks to all contributors who have added their support and shared information. Cheers, Seamisty:bounce:

 

[Rocky1]

Re: Octaviar MFS Premium Income Fund PIF

I've learnt to never count my chickens until they have hatched and with out putting a negative on the first positive we have had for some time this could all just be a smoke screen to try and halt our Action Group, so we must push on with recruiting numbers so we can, if need be, look after our own interests because date those people we entrusted have not done a very good job.

As such I have just spoken to Nick Nichols from the Gold Coast Bulletin again and he is going to ring me tomorrow to discuss an article in one of this weeks additions

 

[zixo]

Re: Octaviar MFS Premium Income Fund PIF

We really need this forum list to grow quickly so perhaps we can have questions answered truthfully for all Investors.
I agree with rocky. This Forum really is FOR investors BY Investors. It appears that the best interests with the fund are not with people who have up to this date been so pathetic in disclosing credible information or facts.
The management of MFS/Octaviar have been happy to keep us in the dark up until now. They forget it’s our money and livelihoods at stake. They dawdle and make deals with OUR funds and still get paid.

 

[selciper]

Re: Octaviar MFS Premium Income Fund PIF

Scott Francis -

Thanks for a great article to-be. It reflects well on the activities of the action group that possibly prompted you to write the story. Breaker1's post today is also very helpful. I understand that the PIF "team" read this thread very thoroughly.

 

[breaker1]

Re: Octaviar MFS Premium Income Fund PIF

It appears there is a small chance Packers Arctic Capital might pay the PIF it's LLA $63 Mill debt to the PIF

Packer's snow pitch still on the slopes* June 11, 2008 Sydney Morning Herald
* Page 1 of 2

Arctic Capital has completed the top of the run but there's still plenty of turns to go.

LIKE a slalom ski run, James Packer's move on snowfields and aquarium operator Living and Leisure Australia (LLA) still has plenty of twists and turns to negotiate.

Packer's private equity fund, Arctic Capital, is attempting to pull off a recapitalisation of LLA, whose future is being threatened by its former parent, the financially-stricken Octaviar group, better known in its previous incarnation as MFS.

The plan involves Arctic underwriting a $90 million rights issue, taking on $63 million of debt owed to Octaviar's Premium Income Fund, and helping organise the repayment of an additional loan of $127 million to the National Australia Bank.

According to an updated statement yesterday, Arctic has now completed its due diligence on LLA, which operates the Mount Hotham and Falls Creek ski resorts and a host of domestic and international aquariums.

But Arctic has yet to reach a final deal with Premium Income Fund on acquiring its debt, nor has it obtained all the information it needs from Octaviar to assess the position of the responsible entity which manages LLA and which the fund is also looking to take control of.

Thus the underwriting deal remains on a knife edge, which no doubt is the reason why LLA's shares keep slipping, down another 0.4c to 3.6c yesterday.

Do The Deal!!

 

[Tuart]

Re: Octaviar MFS Premium Income Fund PIF

Breaker

The deal does not involve PIF getting $63 million but having to take a loss on the loan.

I believe the deal is $30 million cash plus PIF gets left with $10 million non interest bearing note plus 8 million LLA shares which if they trade back at 7.5 cents is worth just under the million mark.

Debt was over 70 million so that appears to be about a $30 million loss.

Whats the bet tha LLA will still carry the debt at full value on their books and through the rights issue Artic will get repaid the full value of the loan picking up a 20 to 30 million quick profit.

 

[wally3218]

Re: Octaviar MFS Premium Income Fund PIF

I had a phone call from a lawyer from the firm Maurice Blackburn there handling a class action against Octaviar for failing continuous discloser breaches.
She rang asking me if I was a share holder or investor as I had previously rang them a few months back.
There just looking after share holders and there going a head with it.
She told me there having trouble findin out the proper structure of the company as things are all over the place.
She also said the share holders wont be getting much in return if they succeed.
I told her about this forum and action were trying to take and she said it was a very good idea

 

[marcom]

Re: Octaviar MFS Premium Income Fund PIF

Hello Tuart

Not sure where the reference to $30 million came from - from memory it was only referred to in one article - AFR I think - all other articles covering the recapitalisation proposal quoted the ASX announcement. It certainly does not appear in the ASX announcement, and if it is a part of the deal then it should have been disclosed!

Attached is the section from the Arctic Recapitalisation Proposal announcement off the LLA ASX site dated 16 May 2008. It specifically mentions Arctic purchasing $63 of PIF unsecured debt, AS WELL AS the remaining balance of the unsecured debt being $7 million plus capitalised interest Ie $70 million plus capitalised interest.

The $7 million plus interest is to be repaid in the form of a $10 million 0% interest note, plus 88 million LLA shares and another 88 million options.

If this comes off the PIF could repay the RBOS - provided the Windup proceedings don't get in the way.

 

[Tuart]

Re: Octaviar MFS Premium Income Fund PIF

Thanks Marcom

This would be a good question to ask the RE. I had picked up on the $30 million figure from the article you referred to.

If they get $63 million plus the note plus the shares assuming they get back to 7.5 cents they wil break even or be slightly ahead depending on how much interest had been paid or not paid.

Another question would be why given that LLA were in default did PIF continue to allow this facility to be drawn down upon.

 

[marcom]

Re: Octaviar MFS Premium Income Fund PIF

Tuart

Here is the response that MFS gave to Financial Advisors on 5 February 2008:

2. Why do you regard MFS Diversifi ed and MFS Living and Leisure as appropriate investments for the Premium Income Fund?

"Both MFS Diversifi ed and MFS Living & Leisure unit holdings form a part of the property trust sector of the Premium Income Fund. They were purchased
for their excellent diversification and income yields which met the Fund’s investment guidelines. These securities continue to meet the investment
criteria required for the Fund."

I have attached the full document (which is still on the Octaviar website) - its worth looking at to see how they invested in Trusts associated with or purchased shares in associated MFS entities.

3. Have all the related party loans been disclosed?

Yes. PIF has almost 17% of assets in related party assets, being funds managed, but not controlled by MFS Group companies. PIF is prohibited from
making loans directly to MFS Limited, its wholly owned subsidiaries, or its Directors.

I am not sure of the legality (or in any case the morality) of INDIRECT loans to associated entities to circumvent the PIF Trust deed - I'll leave that to others.

I have given this info to Scott Francis for his article.

 

[Javier]

Re: Octaviar MFS Premium Income Fund PIF

From today's SMH:
http://business.smh.com.au/packers-snow-pitch-still-on-the-slopes-20080610-2oli.html

Interesting to note,
But Arctic has yet to reach a final deal with Premium Income Fund on acquiring its debt, nor has it obtained all the information it needs from Octaviar to assess the position of the responsible entity which manages LLA and which the fund is also looking to take control of.

Does that mean the fund PIF is also looking to take control of LLA if Arctic does not come up with a great deal for PIF?? Gee I wish we were better informed, we are just second guessing news articles..soooo frustrating!!!

 

[Wolfgang]

Re: Octaviar MFS Premium Income Fund PIF

Hi
I do not understand any of this, you blocks are doing all the work thanks.
I am completely lost with all this jargon and the more I read the more I get confused.
It will be so simple if OCTAVIAR let all of us in on what is happening.

Thanks again Javier, marcom, Tuart, wally3218, breaker1 and the rest of you

Thanks
Wolfgang

 

[seamisty]

Re: Octaviar MFS Premium Income Fund PIF

Wolfgang you will not be the only investor who finds the situation of the Premium Income Fund (PIF) confusing, frustrating and stressfull, that is why there is a need for the Action Group. My husband and I invested in the PIF (as did all investors) because we were led to `believe it was a very stable and secure investment, which it was for many years and hopefully will be again. We never expected this outcome. I am sure the Action Group will do its best to keep all members fully informed to the best of their abilities. There is also much usefull information posted on this forum. Regards, Seamisty

 

[zixo]

Re: Octaviar MFS Premium Income Fund PIF

Its Ironic that funds being held in trust for City Pacifics mortgage fund (which is the equivalent to The Premium Income fund only less diversified) are being held By the Queensland Public Trustee whom now are actively trying to liquidate Octaviar.

City Pacific only conducted due dilligence earlier this year. One Wonders if QPT are being nudged a little to see if a firesale can pull CP out of their mess.

 

[marcom]

Re: Octaviar MFS Premium Income Fund PIF

ZIXO

The Public Trustee of Queensland also is the Custodian of Jenny Hutson's Wellington Property Fund and many other Queensland based funds.

 

[zixo]

Re: Octaviar MFS Premium Income Fund PIF

Marcom,

Thanks for the Update, I for one didn’t know Wellingtons Custodian is PTQ.
Let’s hope Jenny Hutson will get the 50 million earmarked from Octaviar for the PIF