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To the Lenders in Project # 1199
2nd Mortgage on Goodridge Peninsula Holdings Ltd.
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?
Goodridge Peninsula is located in Sooke, BC. The property was the site of the Lamford Forest Products Ltd. Sawmill until 1989 when the company went bankrupt. Goodridge Peninsula Holdings Inc. then bought the property and intended to develop it as a residential and commercial subdivision. Goodridge Peninsula Holdings Ltd. is currently taking measures to remediate the site to appropriate levels prior to development. Advances on this mortgage were to pay down existing debt and provide funds for the remediation. We are not yet aware of the status of the remediation efforts.
How much was supposed to be raised for the project ?
$2,770,000
According to Eron's records how much was actually raised for the project ?
Approximately $2,770,000.
According to Eron's records how much was advanced to the project ?
Approximately $519,248
What happened to the rest of the money ?
After paying $53,570 as lender fees and administration fees, $500,000 as brokerage fees to EMC, and $2,180 as legal fees, the balance of funds totalling $2,214,248 was advanced to Lando & Company Barristers & Solicitors, in trust, to fund loan.
Then, $950,000 was used to pay down the existing first mortgage. $300,000 was retained as interest reserve for the first mortgage and another $445,000 was used by EMC as interest reserve for this mortgage. Finally, $519,248 was advanced to the borrower to "complete the remediation and roadwork".
The present principal and interest outstanding on the mortgage is calculated to be approximately $2,779,304 as of October 3, 1997.
What security was taken on the project ?
A 2nd mortgage in the amount of $2,770,000 in favour of 543731 BC Ltd. (an Eron trustee). The mortgage was registered in land titles under registration number EL86895.
Are there any mortgages or other loans in priority to the project security ?
The following mortgage appears to have priority:
A 1st mortgage in the amount of $2,200,000 held by Frank Wille Holdings Ltd., Grampian Holdings Ltd., Susan Carole Bregg, and Affirmed Mortgage Group Ltd.. The mortgage was registered in land titles under registration number EH156077. It was then modified by registration EL86891. We have written to determine the present status and amount outstanding but have not yet received a response.
What is the value of the project ?
An appraisal report was conducted in a restricted report format by Brian McConnell & Associates Ltd. on March 11, 1997. The value of the project varies from $7,821,000 to $11,745,000 depending on the proposed use of the property, before any allowance for anticipated costs of remediating the site, establishing services or otherwise improving the property.
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?
- Personal guarantee of Jim Lieph, President of Goodridge Peninsula Holdings Ltd.;
- Corporate guarantee of Goodridge Peninsula Holdings Ltd.;
- A loan agreement in the amount of $2,700,000;
- A first mortgage deposit agreement;
- A second mortgage deposit agreement;
- General assignment of contracts, warranties, licenses and permits;
- An environmental indemnity agreement (unsecured, provided by Goodridge Peninsula Holdings Ltd.).
The value of this collateral is not yet known, we anticipate gathering this information by the end of November.
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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