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John Fisk Radio New Zealand Interview

John Fisk, one of the PwC Administrators for Ruapehu Alpine Lifts appeared on National Radio today:

AI generated transcript (may contain errors):

Nearly three weeks on from calling in administrators, what more do we know about the future for Ruapehu Alpine Lifts? RAL, which runs the Whakapapa and Turoa ski fields on the mountain, has put itself into voluntary administration, owing tens of millions of dollars. It blames the pandemic, coupled with this winter's terrible ski season. John Fisk of PWC is one of two administrators tasked with trying to salvage the business. The government has knocked back any suggestion of a further bailout beyond the $15 million in loans made to RAL since 2018. Life pass holders have successfully argued that they are official creditors. And as of yesterday, voted in two representatives to be part of a creditors committee. There's something like 14,000 life pass holders. John Fisk is back with us from PWC, and I appreciate your time again, John.

Kia ora, Kathryn. Nice to be here.

Let's hear what we've learned since the three weeks ago when we last spoke. You were very upfront then about the scale of what it would cost if this business was liquidated because of the make good provisions, getting everything off that mountain. Something like $150 million all up would be the consequence of the end of it, John?

Yes, there's various estimates. Maybe not quite that high, but certainly hundreds of thousands. And also, if it went into liquidation, the economic damage to the region would be significant as well. So it's not only the cash cost of removing the equipment or infrastructure from the mountain, it's also the economic damage. And that's very much what we've been focusing on in terms of how we address that and keep the mountain open for the 2023 season.

I think the $150 million, does that include clearing all the debts plus all the make good provisions that would be involved?

Yes, there's about $44 million of creditor claims in RAL together with the Life Pass Holder claims. So that's significant as well, that's right.

So right from the start, your line has been by far the best situation for everybody to avoid this. The question is how. Could you explain a bit more about the quantum of debt owed and to whom and possible ways forward in the interim?

Yes, so as I mentioned, about $44 million of creditor claims in the voluntary administration that we've identified so far, about $32 million of that is secured debt to bond holders, the ANZ Bank and MBIE.

What's clear is that the vehicle that has been operating the mountain to date, it's not viable in the future. What we need to do is get the operation into a new vehicle that's recapitalised and meets the needs for future operation.

And to do that, we need cash to be able to, by the time to be able to do it. I'm pleased to say that we've made some good progress there.

We have now just confirmed with the Crown and ANZ that they will provide emergency funding to get us through to before Christmas. And that will give us some time to put together a plan to ensure that we give the best possible opportunity to open again in 2023.

Can you detail what that rescue package is through to Christmas?

What we'll have is this funding that's gonna be provided to be able to continue to employ staff to prepare the mountain for the winter season. There's an awful lot of maintenance that needs to go on over that period. And also the funding will enable us to look at a restructuring option. And that needs to be detailed out. That needs to be detailed out over the coming weeks. But at least we've got some breathing space now to be able to do that.

Is it MBIE that will provide this? Will it provide it as a loan? Will it provide it? What's the status of it, I guess?

Yeah, so it's a loan from ANZ and MBIE. And that loan will need to be paid back if there is a successful transaction that's completed.

Can I get a figure out of you or not?

It's $4 million in total.

So that will allow work to happen on the mountain and keep open the option of next winter happening as an active season. However, this is only through to Christmas. Does that give you a couple of months to have a different funding input coming? Like what happens when that money is spent?

Yes, look, it's a short period of time considering the complexity of what we're dealing with here, but it does give us a window of opportunity to try and to bring together the real strong interest that we've seen from Life Pass holders who want to contribute to a future. So they're absolutely key to this process. But also to talk to iwi, to talk to the councils, to talk to DOC, and bring those parties together to do something that will enable the operation to be fit for the future.

Well, let's deal with this bit by bit. If I'm hearing you correctly, RAL and those running it will not be part of this future?

No, we're not gonna be handing the company back to the existing shareholders and management. There's just too much debt in the company. So that's just not practical. So we need a new vehicle to be able to operate the mountain.

Have you had, we'll come to the Life Pass holders, I know they're key, but have you had any reasonable interests from another commercial operator? Or is this mountain simply too difficult to be viable for a for-profit company?

Look, we haven't gone out and actively sought interest from other operators yet, but we have had inquiries. So they could be part of the solution here. But I think anyone that is gonna come into this ski operation will need to have a good understanding of the cultural and social sort of issues that are associated with the mountain as well. And that'll be important ingredients in any successful future.

You're meeting with all interested parties and of course, four iwi involved here, but you mentioned the Life Pass holders being critical and this is because they may be a source of cash again. Can we talk about what's happened? Two were elected yesterday to a committee of creditors. As things stand, what is the status of those 14,000 Life Pass holders at the moment?

So they're essentially contingent creditors of RAL because what they've got is a right to ski on the mountain. And up until the 2022 season ended late last month, they were able to do that. And so they actually, that's why we valued their claim at $1 dollar for the purposes of the creditor meeting that was held just recently. What we've got to do though is actually establish whether they do have a claim and how much that claim would be valued at. And each one of the Life Pass holders could have a different value for the claim. So for example, if you're a 70 year old, you've probably got a limited amount of time and use for your Life Pass compared to someone that might be 20 that could have quite a few years use. So it almost becomes an actuarial calculation on what is the loss that would be caused to a Life Pass holder if the mountain wasn't available to them to be able to ski on. If there is a new vehicle set up, however, how would their claim be realised?

Now, I appreciate you're also looking to them for fresh capital, right? But let's just say the company is somehow established. How would their claim be realised?

In theory, they should be able to go and continue to ski, but that may not be what it looks like because we're in this catch 22, no functioning company, no skiing.

So just explain how you're explaining to them their options.

Yeah, so if they're unable to ski, then they become an unsecured creditor of RAL. So they join the queue with all the other creditors that would have a claim if the company went into liquidation. And so we need to sort of compartmentalise that with what the opportunity is in a new company to be formed.

What I think will need to happen is we'll need to ask Life Pass holders whether they want to contribute new capital to a new vehicle. And if they do, then the terms of that contribution and what they get out of it will be set by the new company. Or alternatively, if they choose not to do that, then then they will stay as an unsecured creditor in RAL. And whatever realisations can be made from that process will be distributed to them evenly along with all the other unsecured creditors.

So how do you proceed? Do you ask 14,000 people for $2,000 each or $4,000 each or $1,000 each, the number who agree to participate, be price sensitive, how do you, do you put together a range of potential rescue packages?

So that's the work that needs to be done now in terms of what needs to happen is we need to look at what's the level of capital that's needed to operate the business going forward? And then how is that capital gonna be made up? And that could be made up of only Life Pass members or it could include other interested parties. I mean, there's a lot of people that also buy season passes to ski. So they may be interested.

An awful lot actually. It was one of the issues people had with RAL was how many seasons passes were sold.

And then there's also the possibility of bringing in an operator. So it could be a company that's owned 50% by Life Pass holders, 50% by an operator. Or it could be something that's done in conjunction with the infrastructure owned by a company and an operating company that has the Life Pass holders to do the skiing.

So there's a whole range of options that we're looking at in terms of how it could be structured. And that's part of the work that we're gonna be doing over the next few weeks.

Speaking to an accommodation business last time we spoke, there's also the fact there's a heck of a lot of small businesses who have an interest in this company surviving. Many of them, I imagine, some of their family anyway will have time to ski, if not the business operators, but there may be more funds there. Question is, what do you need to have a viable operating ski field (or two) up there next winter? How much money?

We calculated that we needed $9 million to get us to the start of the 2023 season. So, how are we gonna get there? Now that we've got this emergency funding, I think there's every chance that there will need to be still a season pass issue, but it'll need to be delayed. Normally, it would be going out in October, but given the circumstances, that's probably more likely to be February or March next year (if it's gonna happen). So, there'll need to be some working capital that is established to at least get to the start of the 2023 season. And then the funding will be needed to actually maintain and operate the mountain on a long-term basis.

Staff is another challenge. Making sure you've got the support you need in a situation of doubt. And during this period up till Christmas, is that being thought about in terms of communications that are had within New Zealand, but also overseas?

The staff numbers get up to 700 for the peak of the winter season. I must say, I've been impressed with the resilience of the staff we're working with. They're incredibly good people and really want to see a good outcome. We're down now to a core staff of about 60, they have a lot of institutional knowledge. This mountain is a very difficult mountain to manage and so that knowledge is incredibly important. So they're a really key part of this process as well. We want them to stay connected and we'll need to encourage people to come back for the winter season as well.

As we said, at least 4 Iwi with interests in RAL. And could we learn a little bit more about the conversations you're having with Iwi, but also how things went with the situation RAL found itself in. Were they properly consulted ahead of this voluntary administration?

Voluntary administration is a very difficult thing to do a consultation on before it happens because the directors have, when they realise that they can't pay their debts as they fall due, they've got a duty to immediately go into an insolvency process. So there's very little time to sort of consult widely about that, which is unfortunate, but it's just the commercial reality and there's personal liability on directors if they don't do that and they continue to trade and incur debts. So this process is one that doesn't fit particularly well with a consultative process before the appointment, but it certainly does work well post appointment. And we've spent a lot of time trying to understand different Iwi needs and wishes.

We've had meetings with Ngati Tuwharetoa, with Ngati Rangi and with Uenuku. And the thing that we found is that they are very supportive of trying to find a solution here, but we also need to understand the cultural significance of the mountain. And there's slight variations on that, depending on which Iwi you're talking to as well. So we have to acknowledge that. But the one thing is clear is that out of this process, hopefully we can get something that's actually even better than what was there before and meets the needs of Iwi as well as the skiers and other people that want to use the mountain.

With the rescue package that you now have, $4 million from MBIE, you've got this other fundraiser imminent and $9 million you're estimating that you need through to the start of the season 2023. Is that envisaging both sides of the mountain operating as a ski field next year?

Yes, that was on the basis of preparation for both sides, but there's definitely different issues on Turoa which has a greater need for maintenance than on the Whakapapa side. So again, that's part of this whole restructure plan, is we need to think about how that could work.

So when will the restructure plan be going to the committee? Who makes decisions actually about the restructure plan? Who will make that call on New Co? What it is, who's in it, what it's running?

We're responsible for developing the plan and then what we will do is we'll work with the creditors committee so that we can get input from them along with all the other stakeholder groups that we've talked about. And then before Christmas, we will be calling a meeting of creditors which is called the 'watershed' meeting.

So that's a meeting for the creditors to decide do they want to accept this plan or do they want to go into liquidation? So that will be the two options that are put to them. And so at the end of the day, it'll be the creditors that decide.

So will that plan envisage 2023 and either one, or possibly both sides of the mountain getting its way through 2023, or will it look further ahead? Will it look down the road further as to what it's going to take to sustain a new company over time and possible rationalisations on the mountain or whatever? How far ahead will that December plan look?

It's intended to look long ahead. So this would not be a plan that's just a temporary plan to get through 2023, this would be a long-term solution for the operation.

That's when it will be crunch time as to what skiing on the mountain, if any, will look like going forward. We hope we can talk to you again then, John. Thanks very much for your time. Pleasure. Thank you. John Fisk from PwC.


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