Bridging Finance did not take into account bad debts, potentially increasing its management fees: receiver

Financial Services

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David and Natasha Sharpe of Bridging Finance at the company’s offices in downtown Toronto in 2019. The Ontario Securities Commission alleged that Bridging was “grossly at fault” in connection with several loans.

Fred Lum / The Globe and Mail

Many loans made by Bridging Finance Inc. over the past four years have struggled to function, but the issues have not always been reflected in the lender’s books, court documents show, allowing Bridging to collect substantial fees.

From early 2017 to late 2020, Bridging earned over $ 150 million from investors in the form of management fees and variable performance fees. These payments have been calculated based on the net asset values, or NAV, of the Bridging funds managed.

But the value of those funds has not always been lowered, as some of Bridging’s borrowers have faltered and in several cases even started insolvency proceedings, according to court documents.

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The allegations are contained in the latest report from the court-appointed receiver for Bridging, which was brought under the control of PricewaterhouseCoopers LLP in April at the request of the Ontario Securities Commission.

The OSC alleged that Bridging had committed “serious misconduct” in connection with several ready. This includes an allegation that a company controlled by Bridging’s biggest borrower, Winnipeg businessman Sean McCoshen, made transfers of $ 19.5 million to David Sharpe’s personal chequing account, then CEO of Bridging, after Bridging advanced funds to Mr. McCoshen’s projects.

The new information adds to uncertainty over the remaining value of Bridging’s assets and whether the private lender’s 26,000 retail investors will be able to recoup their full investments. It also raises the question of whether investors overpaid Bridging managers for many years.

PwC determined, after a review of Bridging’s portfolio, that there had been only one loan in the past four years whose internal value has been reduced to reflect its problems. PwC did not identify the borrower by name.

Earlier this year, a review of The Globe and Mail’s court records showed that several borrowers from Bridging filed for insolvency proceedings during the four-year window, including Bondfield Construction Co. Ltd., which owed 44, $ 3 million, Hygea Holdings Inc., which owed $ 130 million, and Audible Capital Corp., which had $ 16.3 million in debt.

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Bridging’s management fees and incentive fees were based on monthly estimates of the net asset value of its loan portfolio. From 2017 to the end of 2020, the company collected nearly $ 48 million (plus US $ 4.5 million) in management fees, and it collected approximately $ 101 million in incentive commissions, which were earned if the net asset value of the portfolio exceeded a predetermined threshold. .

A summary of Bridging’s total loan portfolio provided by PwC shows that as of June 30, $ 509 million in loans – or a quarter of the $ 2 billion in total assets. a under management – have been made to companies that are either insolvent or involved in litigation with Bridging.

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That figure includes Bridging’s largest outstanding loan, to Alaska-Alberta Railway Development Corp., which filed for bankruptcy protection in June. The project was led by Mr. McCoshen, who intended to build a railway line for deliver bitumen from the Alberta tar sands to ports in Alaska, but it never got beyond the conceptual stage.

The receiver’s latest report also provided a preliminary analysis of the loans that were transferred between the bridging funds, and PwC said it appears that some of those transfers took place after the borrowers at Bridge started a process of ‘insolvency or were sued by Bridging. Despite the uncertainty, Bridging’s transfer values ​​did not appear to account for any write-downs, PwC noted. The receiver said he would continue to investigate the processing of these loans.

The report also alleges that in July, the receiver learned that Mr. Sharpe’s Toronto home was the subject of a private market for sale. Mr Sharpe was fired from his job at Bridging, as was his wife Natasha Sharpe, the company’s former chief investment officer, shortly after PwC’s appointment.

PwC said it later struck a deal with Sharp’s lawyers states that if the house is sold, any proceeds will be held in a law firm trust account.

Mr. Sharpe declined to comment.

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