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Eron Lenders
Project Name: S.T.E.S. Quadra
Lender update
February 10, 2003
Further to our letter dated December 19, 1997 we are writing to update you on the status of the above noted mortgage.
Project Status
In our last letter to you with respect to the S.T.E.S. Quadra project we indicated that the Judicial Trustee had requested a copy of a current survey from the borrower. This survey was received and indicated that the scrap value of the vessel was between US$500,000 and US$600,000.
In view of the environmental concerns with the vessel and the potential for significant liability, legal counsel advised the Judicial Trustee not to take possession of the vessel under the marine mortgage and to allow the owners to find a buyer.
Throughout 1998, the owners claimed that they were close to a deal to sell the vessel, but were reluctant to provide details. An offer of US$70,000 free of liens was received, but was considered to low by the Lender's Committee and the Judicial Trustee.
In February 1997, the owners retained A.L. Hanic & Co. ("ALH") to provide security, maintenance and repair, berthage and other necessaries for the vessel while in dock at Alameda California. By mid 1998, the amount owing to ALH had grown to US$120,000.
In late 1998 an offer of US$200,000 was received from World Power and Light Ltd. a related company to the owners, to discharge the Eron mortgage. With the approval of the Lender's Committee, a counter offer of US$300,000 was made, but the offer lapsed.
Throughout 1999 and early 2000, offers of between US$100,000 ad US$150,000 were received from either World Power & Light Ltd. or Capital Services, Ltd. Both companies are either directly or indirectly related to the owners of the S.T.E.S. Quadra. In any event, the offers were either withdrawn before they could be property considered by the Judicial Trustee and the Lender's Committee or no response was received to any counter offer put forward by the Judicial Trustee.
By May 15, 2000, the lien claim of ALH amounted to US$402,975.
ALH filed a Complaint For Lien against the S.T.E.S. Quadra with the United States District Court Northern District of California on August 10, 2000. On October 24, 2000, the court granted ALH's request for an auction of the Quadra with a minimum bid of US$550,000. No one bid the required minimum. Another auction took place with the court's approval on February 5, 2001 with a minimum bid of US$350,000. Again no one bid the minimum.
On February 16, 2001, ALH requested the court to issue an order for the sale of the S.T.E.S. Quadra with no minimum bid. In addition, ALH sought the approval of the court to use their outstanding lien claim to make a credit bid of up to $250,000 for the S.T.E.S. Quadra. The sale was to take place on March 13, 2001. The owners of the S.T.E.S. Quadra successfully applied to the court to cancel the March 13, 2001 date. The owner's attempts to reach a settlement agreement with ALH dragged on throughout the balance of 2001. Meanwhile, legal counsel for the owners applied to the court for permission to withdraw from the court action for non-payment of their legal fees.
On February 22, 2002, ALH requested the court to grant an order to ALH to sell the S.T.E.S. Quadra to recover their lien claim. The owners chose not to retain new legal counsel to dispute the court action, and the Judicial Trustee could not justify the expenditure of further funds on the project with the expectation of little or no gain.
There will be no recovery to the S.T.E.S. Quadra Lenders from the S.T.E.S. Quadra project.
Lender Communications
We will continue to communicate directly with all lenders. However, we urge you to take advantage of the web site at http://www.eron-pwl.com for project specific updates as well as related court orders and other general information. If you need information on reclaiming tax on interest income in prior years, please call David Craig at (604) 713-6680.
Yours truly
PricewaterhouseCoopers Inc.
Judicial Trustee
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