Octaviar set to clear debts

Octaviar, the former MFS Premium Income Fund, could be paying distributions before Christmas this year, its fund manager believes.

Wellington Capital managing director Jenny Hutson said the mortgage fund’s debts should be finally cleared by December.

“Today, the fund has debts of $9.5 million and we hope to repay this shortly,” she told the National Stock Exchange (NSX) conference in Melbourne.

“This will enable us to resume distributions to unit holders.”

Octaviar ran into trouble earlier this year and redemptions were frozen.

It had $755 million of capital in mortgages, but was laden with $100 million of debt.

Hutson said the fund’s bankers, The Royal Bank of Scotland, wanted the debt repaid immediately.

When Wellington was invited to become the responsible entity of Octaviar there were two options, a listing or liquidation.

“What we had to do was reduce debt through asset sales,” she said.

“But redemptions had to remain frozen if the fund was to continue, otherwise we wouldn’t realise the true value of the assets.”

The proposal was to list the fund on the NSX, with unit holders becoming shareholders.

“We had to change the fund to create liquidity and if we had wound the fund up, investors would only have got a third of their investments back,” she said.

“So we asked then to forego the right of redemption and in three to five years we will liquidate the assets at a better price.”

There are 32 assets in the fund and Hutson said her company has ruled out foreclosures on the mortgagees if they get into trouble.

“If a mortgagee gets into trouble, we will try and work with them as a joint venture partner to trade out of the problem,” she said.

“Our aim is to get the asset backing of the fund back to $1 a share.”

Hutson said the listing has given the fund transparency while protecting the privacy of the mortgagees.

“The listing has also created a platform for the future to protect the investor’s interests.”