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Eron Lenders
Project Name: #1189 - Morewood
Lender update
December 5, 1997
Further to our letter dated November 5, 1997 we are writing to update you on the status of the above noted mortgage.
Project Status
To date, we have held numerous discussions with the Borrower, North Shore Associates. Additionally, we have been in constant contact with Cedaridge Development and Management, an equity partner in North Shore Associates.
The bare trustee may have failed to meet its funding obligations for this project, and we have been contacted by the Borrower's legal counsel who has alleged lender default. We have referred this matter to our U.S. legal counsel, and have obtained a preliminary bankruptcy injunction in the U.S. staying potential litigation.
We have been advised that the managing partner of the development project, JBT Associates ("JBT"), has arranged for an extension of the land purchase closing date to on or about December 15, 1997. JBT is currently attempting to arrange financing to close this purchase. We have been further advised that once this financing is secured, the Borrower will be in a position to address the loan outstanding.
It is our understanding that the Borrower will be seeking a deferral of payment of funds outstanding for a period of twelve months on a no interest basis. The deferral of payment may be the best means for the Judicial Trustee to improve its security position on the property, because at present there is only a promissory note from the Borrower (a shell company with no assets) and no secured position on the property. We have indicated to the borrower that we will require any deferral agreement to be interest bearing, and that it includes a payment of some up-from earnest funds. Also, we have indicated that as a condition to reaching an agreement, we will require the Borrower to waive the potential funding default. We anticipate receipt of an offer from the Borrower by December 12, 1997.
We have conducted the activities, set out above, based on the information presently available.
Price Waterhouse Limited ("PWL") Activities
In previous communications we have noted the incompleteness and deficiencies in Eron's mortgage and accounting records. During the past several weeks we have been sorting and analysing these records which are essential to the recovery and distribution of funds.
A significant portion of the accounting and sorting of mortgage records will be completed by the end of December 1997. The final accounting and determination of accurate lender listings cannot be completed for the project until the accounting is competed for all projects due to the numerous inter-project transfers. We are using the information provided to us by lenders to cross check accounting records. We therefore request that you return to us the Lender Confirmation form enclosed with our October 6, 1997 letter, if you have not already done so.
We are minimising costs while seeking to maximise your recovery. In certain instances this goal is best served by using staff who are not PWL employees. Accordingly, we have retained the services of short-term contract staff at rates significantly lower than PWL hourly rates to assist us as appropriate.
Price Waterhouse Fees and Disbursements
There are two components of PWL's fees and disbursements on each individual project, direct costs and an allocation of indirect costs. Direct costs will include costs specifically related to the project, such as, legal fees, time spent by the PWL/contract staff analysing the project and devising a strategy to maximise recovery and creating project accounting records. Indirect costs will include such items as general lender communications, analysis and creation of non-project specific accounting records and all other costs which cannot be directly attributed to specific projects.
We are also incurring costs such as rent, utilities, insurance, appraisal fees and other costs. Certain of these costs will be direct costs to the project (e.g. appraisals) while others will be indirect (e.g. utilities). We have not discussed these costs in this letter.
At November 30, 1997 the direct fees incurred on this project totalled approximately $17,400 excluding legal fees. We are unable to estimate the future direct costs for the project with any degree of certainty. However, we estimate that the future monthly direct costs will significantly be reduced for the remainder of our engagement.
At November 30, 1997 the indirect fees totalled approximately $954,300 for the 81 projects. These indirect costs have been incurred as follows: 27% lender communications; 21% engagement planning management; 13% office, record and employee management; 9% general project matters; 9% preparation for and attendance at court; 6% banking and accounting matters; 2% meetings with regulators and 13% out of pocket legal costs.
Ongoing indirect costs will be significantly reduced as we now have a framework for the administration in place, can increasingly shift administrative tasks from PWL staff to less expensive contract staff and have established low cost methods of communicating with lenders, such as the web site and voice mail information system discussed below. Our goal is to reduce the indirect costs to a level of approximately 20% of the total costs of administering the projects by December 15, 1997.
The method of allocating the indirect costs has not yet been determined, however, an allocation method based on the project's direct costs is considered to be an equitable method. We will seek Court approval of the selected allocation method at a later date.
Lender Communications
To facilitate communications with lenders we have established a voice mail information system with separate voice messages for several projects or groups of projects. By dialling one of the following three numbers (604) 878-4201, (604) 878-4244 or (604) 878-4248 and selecting mailbox number 2182 you will hear a brief report on the status of the project. These mailboxes will be updated regularly by the project lead. A list of mailbox numbers is attached to this letter. Please note that certain projects will not have a specific mailbox and any enquiries with respect to those projects should be directed to our general voice mailbox by dialling (604) 669-5087.
We have also now established a web site at http://www.eron-pwl.com. On this site you will find project specific updates as well as related court orders.
During November, as you may be aware, the Eron Lenders' Committee ("ELC") held an election to select ELC representatives. Approximately 30% of the Lenders in the Eron projects voted in this election with the significant majority voting in favour of establishment of the ELC. The ELC has been instrumental in establishing individual project committees. We have now met with most of the individual project committees and we intend to maintain regular communication with them.
We will continue to communicate directly with all lenders. We urge you to take advantage of the voice mail information system and web site so that you can receive first hand current information from PWL in the most cost effective manner we have available.
We will issue another letter as soon as we have significant new information to report. In the meantime, if you have any specific questions or information concerning the project please contact us in writing at 500 - 1380 Burrard Street, Vancouver, BC, V6Z 2H3 or by fax at (604) 688-6128 marked to the attention of Morewood - Project Lead.
Yours truly,
Judicial Trustee
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