Rams Faces Uphill Push To Refinance $6b In Loans

Sydney Morning Herald

Thursday November 22, 2007

Danny John

RAMS shareholders risk losing a substantial part of the revenue that will make up the rump of the company after warnings yesterday that prospects of refinancing $6 billion worth of home loans are still bleak.

The mortgage lender, which is in the process of selling its brand to Westpac for $140 million, indicated that while it still hopes to replace its US markets-sourced, short-term commercial paper loans with new funds, time was running out to meet a deadline of February 11.

RAMS shares, floated in July at $2.50, went into freefall in August after the global liquidity crisis severed its financing sources. The stock lost another 1.5c yesterday to 26c after telling investors that, following advice from National Australia Bank, it would not be possible to get away a bond issue before the deadline.

NAB is one of two major providers of liquidity to RAMS. The other is believed to be the international investment bank ABN Amro. RAMS secured $1.5 billion from Westpac to tide it over while it sought other sources of finance.

The group said it was hopeful of refinancing one part of the $6 billion loan, thought to refer to $2.7 billion of assets backed by NAB. Of the remainder, ABN Amro is thought to be providing stand-by facilities of $3 billion.

RAMS said yesterday that if didn't meet the February deadline, it would lose most, if not all, of the income stream from those home loans.

The financial impact would be even greater, however, as it would be left with the costs of the loans, including the commissions on them. That raised the prospect of the remaining part of RAMS taking an even bigger hit to its falling profits as its revenue continued to shrink.

Analysts said the failure to replace the $6 billion with new, although more costly, finance raised the prospect of the loans being taken over by NAB.

The bank could either take them onto its balance sheet and finance them directly or, in the longer-term, parcel up the mortgages, just as RAMS had done, and offload the lot to investors through the Australian debt or securitisation markets. That, however, could take some time.

RAMS revealed yesterday that its attempts to raise other sources of debt to underpin its business had been virtually unsuccessful in world markets. It was still hoping to raise between $200 million and $300 million in Australia over the next few months but the European market was effectively closed to new issues, as were the mortgage finance and the commercial paper sectors in North America.

"The likelihood of the commercial paper market returning in its previous form remains remote," RAMS said in a statement to the stock exchange. Its latest advice comes five days before the annual meeting, when shareholders are due to vote on the sale of RAMS's business to Westpac.

© 2007 Sydney Morning Herald

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