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To the Lenders in Project # 1168
Discovery Ridge Development Corporation
November 5, 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 project comprises a first mortgage over lands in Southwest Calgary which are being developed by the borrower as a residential project. The mortgagee is 713473 Alberta Ltd.
We do not yet have a current status report on the development, although the borrower has agreed to provide one shortly.
How much was supposed to be raised for the project ?
$4,619,800
According to Eron's records how much was actually raised for the project ?
Approximately $4,494,777.
According to Eron's records how much was advanced to the project ?
It appears from the Eron records that approximately $3,994,444 has been advanced inclusive of brokerage, lender fees and capitalized interest payments. Price Waterhouse Limited has confirmed with the borrower that, as of September 30, 1997, the balance outstanding under the loan amounted to $4,451,267. The loan documentation provides for the further capitalization of interest to December 31, 1997 to bring the loan balance at that time to $4,620,296. The loan maturity date is January 31, 1998, although an extension may be granted under the loan agreement, subject to the borrower meeting certain covenants.
What happened to the rest of the money ?
It was either used by Eron to pay commissions, fees or interest owed to other lenders.
When will you know where my money went ?
It will be at least two months before we are able to account for all funds received by Eron.
What security was taken on the project ?
A 1st mortgage in the amount of $4,619,800.
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.
What is the value of the project ?
We have commissioned a valuation report of the property, which is to be received by the end of November, we prefer not to speculate on the value, rather we will advise you of the result of this report.
Are there any other security or guarantees which might increase recovery on the project ?
No, the underlying property would appear to be the only source of recovery.
Will I get my money back ?
It is too early to tell definitively how much of your money will be recovered. However, at this early stage it appears unlikely that full recovery will be realized.
When will I get any money back?
It is likely to be many months before any money is 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 will keep you informed on a regular basis and will issue a further project update on or about November 30.
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.
Yours truly
Price Waterhouse Limited
Judicial Trustee
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