Sunday, 29 March 2015

Americans buy FEA

FEA’s Receivers Deloitte has at last found a buyer for FEA’s land and trees.

Resources Management Services LLC (RMS) a forestry investment manager from Alabama paid $125.5 million for land belonging to FEA and trees belonging to FEA’s MIS growers.

The sale price confirms that forest assets have continued to plummet in value. The sale price is a disaster for everyone waiting for a distribution, the secured and unsecured creditors and the growers.

The insolvency practitioners stand the best chance of getting paid in full.

FEA’s secured creditors appointed Deloitte in April 2010, almost five years ago. At the time secured creditors were owed about $220 million and everyone thought they would get their money back.

BRI Ferrier was appointed Administrator at the same time, a position it still occupies.

Given that almost all FEA’s assets being secured assets have been under Deloitte’s control, BRI Ferrier’s task has been essentially to look after MIS growers’ interests being the Administrator for FEA Plantations, the insolvent Responsible Entity for the various MIS schemes.

In March 2011 Rural Funds Management (RFM) boldly proposed to reorganise FEA into a new entity, injecting $85 million of new equity, arranging a bank loan of $100 million and paying out secured creditors in full.

New investors were to hold 50% of the new FEA. MIS growers would own most of the balance with unsecured creditors getting a tiny share. The MIS schemes would then have been wound up after the growers transferred their trees to the new entity.

The projected balance sheet of the new FEA entity valued land at $253 million and trees at $113 million, a total of $366 million.

Had the deal gone through it is probable that the new entity would now be in liquidation, given the way values have dived.

RFM submitted a less favourable revised proposal as did Macquarie Bank. The latter included a MIS Transition process which involved continuing with the earlier MIS schemes, those closer to  harvest, with a view to get a better outcome for growers. The secured creditors only would have had to write off 12% of their debt (excluding subsequent interest and holding costs). At this stage the secured creditors had already netted about $40 million from the sale of the Bell Bay sawmill to Gunns.  Gunns' Receivers subsequently sold the sawmill plus a similar sized mill at Tarpeena, South Australia  for roughly the same price to  Timberlink Australia P/L, a New Forests’ company.

A better return for growers had little appeal for Deloitte, the Receivers. Their preference was to kick the MIS growers off FEA’s land, sell the land and trees as one and pocket the lot for the benefit of secured creditors.

There wasn’t much money coming into the Administrator’s bank account. Not all growers responded to a tap on the shoulder for additional contributions. The hope was that by hanging on, the eventual crop would produce greater quantities at a higher price and the contributions would be repaid with interest.

The more recent MIS schemes, the 2002 to 2009 schemes were soon found to be hopelessly non viable and a decision was made to wind them up. This left the 1995 to 2001 schemes still alive, but these shrank as non viable coupes especially on leased land were cast aside.

Winding up MIS schemes needed grower approval. As did selling trees jointly with the sale of land by Receivers given that Receivers hadn’t yet evicted their MIS tenants.

Growers agreed to allow the Administrator to negotiate a joint sale of land and MIS trees, or a one line sale as it was termed, if the potentially more lucrative MIS transition, where land was sold with the MIS schemes remaining in place, albeit with a new Responsible Entity, was not possible.

But potential land buyers showed no interest in a MIS transition. Not surprising given the grief that has resulted from MISs.

A one line sale was the only remaining option.

Gresham Advisory Partners were appointed by Deloitte to handle the sale about a year ago. Approximately 97,900 hectares of land growing about 46,200 hectares of plantations was advertised. The Australian reported at the time an expected sale price between $200 million and $400.  The Administrator believed the expected figure was $283 million whereas he thought between $225 million and $265 million was more likely.

Overall FEA planted about 70,000 hectares of plantations, roughly half in Tasmania, the rest in NSW and Queensland. Most were grown on FEA's land but some were on leased land. The trees on the sold land were the MIS crops across all schemes, from 1995 to 2009. The median age of the trees was about 12 years.

The final price was $125.5 million. This amount is now in Deloitte’s hands.  Deloitte plan to retain $20.5 million to cover sales expenses and their fees. An amount calculated by an unknown formula jointly agreed by the Administrator and the Receivers and ok’ed by the Court, will then be paid to the Administrator mainly for the MIS trees. Deloitte will pay the balance of the sale price to secured creditors who will have to write off at least half of the debt owing, much more if holding costs are taken into account.

It is not known whether ANZ is still the major secured creditor or whether its  debt was sold a la Gunns. If secured creditors lose half their dough when initially it looked like they would get it all, it means someone has badly misjudged the situation. At a guess Deloitte won't be listing it as one of their crowning achievements.

BRI Ferrier as Administrator will then take their fees from the amount received from Deloitte, before splitting the rest between repaying contributions made by growers during the administration period, small amounts to 2002 to 2009 growers whose schemes are being wound up, unsecured creditors who were told to expect 6 cents in the $, and the balance split between 1995 to 2001 growers.

BRI Ferrier have described the final sale price as ‘very disappointing’ which leads one to think there mightn’t be enough in the kitty to pay BRI Ferrier’s fees in full, let alone any left over to dribble out to growers and creditors.

$125 million for 98,000 hectares with 46,000 hectares growing plantations 12 years old is an unbelievably low price, much lower than the price paid by New Forests for Gunns’ land and trees. The price is possibly even lower than that paid by FEA over 15 years ago for acquisition of what was then cleared agricultural land used for pastoral and cropping pursuits.

With so many MIS assets for sale at the same time, inevitably prices were affected. But the Administrator believes the cost of the remediation of the plantations back to productive agricultural land was a significant driver for the price ultimately achieved.

FEA's land estate is smaller than Gunns' and possibly more widely dispersed from port facilities and other end users, which means than replanting may not be as attractive. Which in turn means that alternative land uses are used to value land. If the land has to be remediated the value of land with plantations may suffer.

The market has determined that plantation trees with a median age of 12 years are worth less than the costs of remediation. 

Minister Harriss and his acolytes are still attributing all blame to the Greens but it's difficult to find supporting evidence for such an assertion in the case of MIS schemes. The risk is if the analysis is flawed any government policy to address problems will be wrong.

It is not known whether the new owners RMS will replant or will remediate. The RMS website is a bit scanty. RMS is a relative newcomer to this part of the world. It is an investment manager meaning it manages other people’s money. Who those other people are, is not known, whether they’re residents or foreigners.

The passing of FEA has been occurring almost without notice. Not surprisingly most people have lost interest.

The complexity of  insolvent MIS schemes has been mindboggling.

Five years to get to this stage is ridiculous.

And there are still 1995 to 2001 MIS trees growing on third party land which are expected to be harvested in the next 12 months before those schemes can be officially wound up. They’re unlikely to result in a windfall for growers as there’s back rent owing and post harvest remediation costs to consider. The third party land owners need to sign Forest Practice Plans (FPPs) which require a post harvest plan so they have some leverage when a harvest plan is contemplated.

Deloitte as Receivers, because it acts for a small number of secured creditors doesn’t bother telling a wider audience what it’s up to unless it has to.

BRI Ferrier as Administrator is obliged to divulge a little more, especially as it needs to maintain minimal contact with growers whose interests they’re supposed to be looking after.

At no stage however have the Administrator bothered to tell growers how their trees were growing.

As with the wind up of other insolvent MIS companies, the Administrator/ Liquidator tells of his argy bargy with the Receivers and his court room stoushes but nothing about the status of the assets entrusted to him.

Trees grow, some die, some coupes have been discarded from schemes, some external leases have been forfeited, a lot of grower woodlots don’t exist any longer. Growers don’t know. They haven’t been told. Not a whisper. One would have thought growers who obtained a tax deduction because they were supposed to be carrying on a business of primary production with specific woodlots allocated to them, would be told how they were going, maybe if they still existed?

Growers have been starved of information, forced to grant the Administrator permission to a certain course for fear that things will be worse if permission is not given.

The growers have been treated appallingly, first by the spruikers who sweet talked them into the deal in the first place, then the companies that planted the trees and now by the administrators entrusted with seeing they get the best deal. The Courts have pursued a narrow brief and ASIC no brief at all.

If ever a grower needed to take action against those who have misled and defrauded , information about his specific woodlot(s) would be useful. Not providing the information is grossly remiss at best, as if there exists a conspiracy amongst the brotherhood.

Growers have been shafted by everyone.

And taxpayers who have underwritten this giant fraud can’t even obtain minimal information on growth rates, yields and prices should they ever contemplate a repetition of this monumental disaster

The only beneficiaries of the prolonged insolvency administration has been the insolvency practitioners themselves.

Little wonder there wasn’t a blaring media release announcing swathes of rural Tasmania are now controlled from Birmingham, Alabama.


  1. Further evidence that ASIC remains asleep at the wheel. I s'pose now that the abbott boys have enabled them to spy on all of us it might help chase down the fraudsters.

  2. Thank you Mr. Lawrence for your commentaries and analysis of this MIS debacle over the past 3-4 years.
    How could any result be so far from the original promise, unless it is a scam.
    You have revealed Australia's latest Ponzi debacle, but I'm sure the spruikers and supporters, and legislators led by the nose will none of them suffer.