Finexia Financial Group (ASX: FNX) has ceased negotiations for what would have been a "material" sale of its subsidiary Creative Capital Group (CCG), announcing a new partnership to revitalise 11 childcare centres it holds as collateral against a $21.2 million loan to two companies it placed in external administration.
Finexia shares have been suspended from trading since 28 February, the day after the abrupt resignation of then-CEO Patrick Bell who, as part of a group of investors, entered into a non-binding agreement with the company to acquire CCG and management rights of the Finexia Childcare Finance Trust (FCFT).
A trading halt was called out of the directors' concern for the loss of confidentiality and any potential impact on Finexia's half-yearly accounts, soon becoming a suspension from quotation that has continued ever since.
During the due diligence process Finexia identified changing circumstances with its borrowers Vertical 4 Pty Ltd and Abacus 49 Pty Ltd, which are affiliated with the Genius Education Group, prompting a "comprehensive assessment" of its exposure.
"As a consequence, and in order to protect the interests of all stakeholders and preserve asset value, Finexia appointed Mr Alan Walker of WLP Restructuring as external administrator to Genius," the company explained in an update to the ASX today.
"As the priority secured creditor, Finexia has been working collaboratively with the administrator to achieve an optimal resolution to the default loans. The company notes that the administration has had no material impact on Finexia’s revenue, which has remained largely consistent with the prior financial year."
Finexia notes its loans to Genius came from two distinct pools of capital - FCFT and the Finexia Childcare Income Fund (FCIF), with the latter being registered managed investment scheme comprising external retail and wholesale
investors.
The group reports its total exposure to the Genius companies is $21.2 million secured against an asset totalling $29.1 million, comprising 11 childcare businesses.
"The lending is secured against operations and associated business assets, not the underlying property," Finexia clarifies.
"Originally, the collateral was made up of 27 childcare centres, however, during the administration process it became apparent that to preserve capital and ensure the best opportunity to recover the loans, the most viable centres (11) would be acquired as the secured creditor."
In a bid to recover its debt, the group has created a special purpose vehicle called Shared Beginnings to hold the assets throughout the debt recovery process, to the benefit of investors in FCIF and FCFT.
"Shared Beginnings will acquire the childcare assets (businesses) and in partnership with proven experienced operator, Early Learning Management (ELM) will operate the centres and trade them to profitability," Finexia says.
"The strategy is to stabilise the trading performance of each centre and then commence a program of divestment and debt reduction, repaying investors in both FCIF and FCFT."
Finexia claims that through the administration process it has secured from the debtor an additional $6 million in collateral over and above the existing security pool, in the form of fully paid shares in Mayfield Childcare (ASX:MFD) whose largest shareholder is Genius Education Group. This takes the total pooled collateral to $35.1 million.
"On 2 June 2025, ELM commenced operational responsibility of the 11 childcare centres while the final conditions of release with respect to the administration are met," Finexia adds.
"These conditions relate to the assignment of leases and various regulatory service approvals. Finexia is confident these conditions will be met and the administration formally closed off."
But how did Finexia get in this mess? The group explains that during the administration process commissioned two parallel investigations into the factors that gave rise to the "Genius situation".
"The first of these investigations is in an internal investigation focused on matters concerning the Genius relationship and the credit approval process that resulted in the default loans," the company says.
"The review will also extend to broader matters concerning all procedures and policies that govern Finexia’s credit activities.
"At the conclusion of the investigation Finexia intends to make the findings known to the market via announcement."
Another investigation, now concluded, involved engaging lawyers to conduct an independent wide-ranging investigation into any potential regulatory breaches within the FCIF.
"Under the microscope will be the actions of the former CEO and his role overseeing the operation and compliance of the fund. Finexia had proactively self-reported a potential breach notice to ASIC," Finexia says.
It claims the draft findings to date are mainly related to record keeping issues and asset revaluation procedures.
"Finexia has been advised that the report identifies a total two breaches, both of which have either been remediated, or are currently being actioned," the group says.
"As part of our prudent approach to credit management, the company has conducted a comprehensive assessment of all credit exposures across the aggregate loan book. At this stage, the balance of the loan book remans in order, but the Company continues to monitor and test each individual credit.
"Whilst the aforementioned actions have consumed a disproportionate amount of management time over the past three months, Finexia has continued to conduct its core business activities; lending to childcare operators."
Finexia says it has secured the continued support of its main strategic financing partners in Income Asset Management Limited (IAM) and Global Credit Investments (GCI).
Led by Finexia independent director Robert Spano, a review has begun of the company's strategy and its overall approach to credit provision and credit management.
"The company intends to broaden its lending scope to also include childcare related property assets. Extending the strategy to encompass childcare property lending is designed to build greater resilience across the portfolio by reshaping the risk and maturity profile of the loan aggregate," Finexia says.
"The company intends to revise its current business plan to capture the aforementioned activities and by extension will adopt a revised credit policy in step with the broadening of its lending activities."
As part of a strategic shift to a private credit focus, the board has initiated a review of the Stay Company Income Fund (Stayco) business, established in 2021 as a resort and holiday accommodation business through the ownership of a portfolio of management letting rights located primarily in Southeast Queensland.
Finexia Securities is the trustee for Stayco, which is structured as an income fund and has returned to investors, in the form of monthly cash distributions, an annualised return of approximately 8.5 per cent since inception.
"The review is examining Stayco’s operational, financial performance, capital structure, resource requirements along with the valuation of the underlying businesses," Finexia says.
"The review will involve obtaining independent valuations from industry experts to ensure that Finexia’s carrying value of its Stayco investment is accurate and current.
"Since inception Stayco has been classified as an ’off balance sheet’ item and is disclosed as an investment. The board is reconsidering this position and may consolidate Stayco into Finexia’s financial statements."
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