Hanover Debt Restructuring PlanMedia briefing

20 November 2008

The detailed terms of the Debt Restructure Proposal will be set out in notices of meeting and an explanatory memorandum to be sent to investors, and short form prospectuses which will be available from www.hanover.co.nz

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Agenda

Greg Muir OverviewMark Hotchin The finance company sectorPeter Fredricson Current position

Debt Restructuring PlanRepayment scheduleDebt Restructuring Plan vs receivershipIndependent appraisals – PwC and KordaMentha

Greg Muir Governance and managementConclusion

Overview

• Global credit issues building for some time – NZ finance sector had specific issues, subsequently worsened by the global crisis

• Hanover recognised lack of funding diversification early and sought to change• Hanover Debt Restructuring Plan provides for

– Additional Financial commitment of up to $96 million by shareholders– retention of board and management, with continued oversight by trustee and

trustee appointed independent– progressive repayment of investors’ principal

• To be put to investors for approval on 9 December 2008• Recommended by the board and preferred over alternative by trustee’s

independent advisors

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The finance company sector

• Provision of ‘mezzanine’ finance – between senior bank debt and shareholders’ equity – is historically entrenched and successful

• Generally repaid as developments complete and new purchasers settle, or on refinancing by other lenders

• Currently distressed, with…– Reduction in numbers of ready buyers for completed developments– Contracting senior lender activity– Significant slowing in borrowers’ ability to repay through realising assets or refinancing

• Conditions will improve in time• Ongoing opportunity for specialist financiers to support property and infrastructure

development

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The current position

• Hanover ceased accepting funds and making repayments on 23 July 2008• Options for recovery of loans and repayment of investments - the Debt

Restructuring Plan or receivership• Total 17,630 investors in the group, with $553m invested

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Secured investorsHanover Finance Limited Approx. 13,800 secured depositors $462.5mUnited Finance Limited Approx. 2,575 secured depositors $64.7m

Unsecured investorsHanover Finance Limited Approx. 125 subordinated noteholders $2.1mHanover Capital Limited Approx. 1,130 preferential bondholders $24.2m

The current position

• Unable to repay all due amounts at present• … but confident that time will enable this to be accomplished• Asset quality is good enough, in our view, to fund principal repayment as

assets are collected over five years• Borrowers need support over the period of the restructuring to maintain the

quality of the asset book and provide the best opportunity to pay out all investors

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Debt Restructuring Plan

• Commitment of up to $96m by shareholders – if plan approved– $36 million of cash; being $10 million for principal payments as required, and

$26 million for debt reduction in Axis Property Group – Personal guarantees available if required from 2010 – $20m– Equity in property assets in Axis Property Group – $40m

• Shareholder cash and property commitments locked in over five-year term• Board and management operate the businesses as a going concern• Experienced team that understands the assets and the market• Separate company plans require approval – all conditional on HFL Secured

Deposits Debt Restructure

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Repayment schedule

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Secured investors

Hanover Finance Limited (1) Target of all principal repaid within five yearsQuarterly repayments commencing March 2009

United Finance Limited (1) (2) Target of all principal repaid within five yearsQuarterly repayments commencing March 2009

Subordinated investors

Hanover Finance Limited 50% of principal to be repaid on 31 December 2013

Hanover Capital Limited 50% of principal to be repaid on 31 December 2013

(1) Interest payment is possible at the end of the term, based on recovery formula(2) Accelerated repayment is possible, based on recovery timetables

Repayment schedule

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Year ended HFL Secured Depositors

Qtr / Yr

UFL Secured Stockholders

Qtr / Yr

HFL Sub. Noteholders

Qtr / Yr

HCL Bondholders

Qtr / Yr

31.12.09 (1) (1) 2% / 8% 2% / 8%

31.12.10 2.5% / 10% 2.5% / 10%

31.12.11 3% / 12% 3% / 12%

31.12.12 8.75% / 35% 8.75% / 35%

31.12.13 8.75% / 35% 8.75% / 35% 50% 50%

Total 100%$462.5m

100%$64.7m

50%$1.1m

50%$12.1m

(1) First payment 15 March 2009, thereafter quarterly on last day of each quarter

Debt Restructuring Plan vs Receivership

DRP Receivership

Continue to trade as a going concern Breakup and sale in current environment

Benefit of shareholder commitment up to $96m No increased shareholder commitment

Retain institutional and market knowledge of board and management

Likelihood of higher costsBorrowers seek lower repayment levels

Modified governance regime• Independent director and chairman, group credit and

investments committee• Independent director continues to chair group audit, risk and

compliance committee• Modified trustee supervision / monthly reporting

Full control by receiver

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Independent appraisals

• Commissioned by the trustees on behalf of the investors• Detailed review of the proposal, repayment forecasts, assumptions,

shareholder commitments• PricewaterhouseCoopers in respect of HFL Secured Depositors and UFL

Secured Stockholders• KordaMentha in respect of HFL Subordinated Noteholders and HCL

Bondholders• Support the view that the proposal is likely to provide a better

outcome than receivership

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PwC scenarios – HFL Secured Depositors

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PwC Sensitivity Scenario 1

PwC Sensitivity Scenario 2

PwC Sensitivity Scenario 3

18.1¢ per $1

17.1¢ per $1

16.2¢ per $1

PwC scenarios – UFL Secured Stockholders

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PwC Sensitivity Scenario 1 PwC Sensitivity Scenario 2

14.8¢ per $1

Undistributed excess of 18.9¢

per $1

9.3¢ per $1 Excess of 3.8¢ per $1

KordaMentha – HFL and HCL Subordinated investors

• KordaMentha has assessed the proposal on the same basis and reached a similar conclusion

• Highly subordinated debt instruments (due to structure or ranking)• Nil value in the context of a receivership• Offer to promote ahead of deferred consideration (for the shareholder

support) at 50c in the dollar

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Governance and management

• Trust deeds amended to give effect to the individual company restructures• Boards of HFL and UFL to comprise two shareholder representatives and

two independent directors – at least one approved by trustee• New independent director to head Audit, Risk and Compliance Committee

and Credit and Investments Committee• New lending subject to trustee-approved protocols and cash availability

restrictions• Continued reporting to trustees under trust deeds & applicable legislation

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Conclusion

The Hanover board believes the proposal is in the best interests of all investors and recommends that investors vote in favour of it

• Maximises recovery potential by– Retaining institutional and market knowledge – Facilitating the additional contribution of up to $96m from shareholders

• Information pack mailed to investors from today and at www.hanover.co.nz • ‘Roadshow’ from 25 Nov to outline the proposal and discuss with investors• Investor vote in Auckland on 9 December

16The detailed terms of the Debt Restructure Proposal will be set out in notices of meeting and an explanatory memorandum to be sent to investors, and short

form prospectuses which will be available from www.hanover.co.nz