To the Lenders in Project #1151
1st Marine Mortgage on the cruise ship Kathleen W.
Borrower: ABC Boat Charters
November 6, 1997
As indicated in our letter to lenders dated October 22, 1997 we will be providing information to lenders through regular project updates. Unfortunately, due to the poor quality of Eron's accounting and lender records we are presently unable to answer all the questions you may have. However, based on our initial findings we can address the frequently asked questions set out below. We stress that the information available to us is subject to verification and accordingly our findings are subject to change as more information becomes available.
Eron was paying me a good rate of return on my money, why was it closed down ?
In many instances payments to lenders were being financed by money received from new lenders or lenders to other projects. Few of Eron's projects were actually producing a return on investment. Our investigations to date indicate that many lenders will incur substantial losses because of these practices. Clearly this situation could not be allowed to continue.
What is the current status of the project?
The subject asset is a 150 passenger cruise ship certified by the U.S. Coast Guard, weighing 220 tons, and equipped with 225 life jackets, four life-boats, ten life rings and five watertight bulkheads. The boat which has been under construction for some months, is now on the water and is very close to the point where it would be possible to commence carrying passengers.
The 1st marine mortgage charge on this asset matured on November 1, 1997. We understand that the Borrower has obtained financing from the Business Development Bank of Canada. Accordingly it is our intention to seek immediate payout in full.
How much was supposed to be raised for the project ?
$300,000
According to Eron's records how much was actually raised for the project ?
Approximately $305,000.
According to Eron's records how much was advanced to the project ?
Approximately $300,000.
What happened to the rest of the money ?
It was used by Eron to pay commissions and fees.
What security was taken on the project ?
A 1st mortgage in the amount of $300,000.
Are there any mortgages or other loans in priority to the project security ?
It would appear that there are no prior claims on the property.
Are there any other security or guarantees which might increase recovery on the project ?
Yes, the following additional security would appear to be available:
- Cost overrun agreement
- Collateral main agreement
- Priority agreement
- General security agreement
The value of this collateral is not yet known.
Will I get my money back ?
It is too early to tell definitively how much of your money will be recovered. However, it appears that a significant portion of the funds advanced may be recovered.
When will I get any money back?
It will likely be many months before any funds are available to lenders.
We caution you that the information available to us is still incomplete and limited in scope. Nothing in the foregoing should be construed as guaranteeing any return of funds. We are advised however that orderly repayment of the loan should be accomplished by the borrower on time.
In the meantime if you have any further questions or information concerning the project please contact us in writing at the above noted address or by fax at (604) 688-6128, clearly marking correspondence as relative to the "ABC Boat Charters project".
Yours truly
Price Waterhouse Limited
Judicial Trustee
