Daily Archives: February 24, 2016

Delta #EpicFail —Noble Subdivision: Cameron, Crombie and McKenzie

Election Year : The following opinion is offered in the public interest. -Eds

Received from Christchurch Driver [CD]
Tue, 23 Feb 2016 at 10:02 p.m.

This correspondent was very interested to read today’s front page ODT article which appeared to confirm the suspicions of an earlier post.

Delta CEO Grady Cameron must be given credit for being honest and transparent, for confirming that Delta spent $3.3M last year buying more debt on the Noble (Yaldhurst) Subdivision. This is in contrast to the cabbage-like behaviour of DCHL chairman Graham Crombie, and DCC/ DCHL financial controller (GCFO) Grant McKenzie. It has hard to escape the conclusion that Mr McKenzie when questioned by city councillors must have known the amount of money Delta spent “strengthening its position”, ie buying up securities that ranked ahead of the Delta security. First, he said he did not know the figures involved, then he indicated to the ODT after Monday’s council meeting that the figure of $3M “was not accurate”, and that he “could not say” what the figure was. Simply put, if Mr McKenzie could not say what the figure was, how did he know that $3M was not accurate ? It seems clear he did know, and is dancing on the head of a pin. He could say the figure, but he would not. No one is counting the six figure amounts ! Maximum points for dissembling to that man.

This and other verbal pirouetting at a recent Council meeting where Mr McKenzie was unable to distinguish between dividends and debt repayment despite repeated questioning from Cr Lee Vandervis was also alarming. Perhaps the lure of a return to the relatively debt free safe haven of the University beckons, not subject to scrutiny of the citizens….

The other person of interest is DCHL chairman Graham Crombie, who also has trouble with numbers and counting. Cr Hilary Calvert surmised that the $11.7M already written off plus the $13.3M debt meant that Delta had an exposure of up to $24M. Cr Calvert was close, if not quite right as the $13.3M was the value of the debt Delta estimated, not its actual debt. Mr Crombie said the figure “never got that high”, and that the interest and penalties were “horrendous”. Mr Crombie’s nose is growing : Grady Cameron confirmed the core debt was $11.3M, plus $3.3M buying debt, plus the previous year’s debt write down of $10.7M which has already been attributed to Noble by Delta. These add to MORE than the $24M suggested by Cr Calvert, yet Mr Crombie was happy to sidestep Cr Calvert, Cr Vandervis and any other councillors who were keeping up – not many it seems.

We should pause re : Mr Crombie has consistently said since the Noble debacle became public that all would be well, Delta would recover its core debt and the penalties and interest weren’t of any moment – yesterday he described them as both “horrendous” and “irrelevant”. An interesting question is – why were the penalties and interest “horrendous” ? The answer is because Delta’s security was so far down the security chain as to be virtually meaningless, and as a consequence, its charges indeed were horrendous because they had little chance of ever being paid, and the rates reflect that.

This correspondent is alarmed that an accountant would describe the interest payable on a debt as irrelevant, especially when the company in question has in effect financed the entire core debt of $11.3M with either borrowed money from the DCC, or by foregoing dividends to the DCC. Mr McKenzie would certainly not agree that the interest charges are irrelevant because Delta’s loan funding has been arranged through DCC treasury at somewhere between 4-7% per year from 2012. Although, the actual figures might be 3.9% to 6.85%….

Delta  logo 2We now know, thanks to Grady Cameron, that Delta embarked upon this foolhardy venture with a security ranking somewhere between 4th and 6th in line.

The crucial question is : after this year’s debt purchases, where are they ranked now ? Delta and DCC refuse to confirm this. If they were ranked first, then it would be Delta themselves that had forced the mortgagee sale process. This seems unlikely since if Delta had control as first security, they would have no reason to hide this and the PR department would spin this as Delta taking firm and decisive action to recover their debt. Instead, Mr Cameron meekly says that Delta is a “secured creditor” and the mortgagee sale process is a “significant movement” towards payment. He doesn’t say to who….

It is also a concern why Delta invested a further $3.3M, if they still don’t have control of the project. Others have posited that they almost certainly bought the debt at a reduced value, but the key point is that they don’t have control and first security does not have to have any regard at all to the interests of lower ranked securities. This correspondent has seen at first hand several similar land deals where second ranking securities from large finance companies received zero. One can be sure that the first security will also have heavy penalty rates and other costs will emerge from the woodwork.

Delta were not some minor suppliers on the project. They supplied all of the infrastructure for the subdivision. There aren’t any other big parts to a subdivision. Typically, if the land is correctly zoned, the rule of thumb for the cost of a subdivision is a third land cost, a third infrastructure cost (Delta), and a third profit.

What is truly astounding is that there were at least three securities ahead of Delta and they knew this going into the deal. Any developer that needed three mortgages or debt securities just on the land and the resource consent process before they started work was doomed if there was any trouble, lack of expertise and unforeseen problems. This subdivision had all those, in spades. A further red flag should have been the involvement of one Mr Justin Prain, who previously touted the unique benefits of the similarly doomed 5 Mile town development at Queenstown. In fact the sales pitch was remarkably similar for both developments.

There are many questions to be answered about this debacle, but one that might unlock the whole saga is : what involvement did Murray Valentine, Mike Coburn and Peak Projects have in any entity related to the Noble Subdivision ?

This correspondent urges the other new Delta directors who were appointed after the Noble deal was entered into to show some cojones and order an inquiry. Clearly, it is just too hard for Mr Crombie.

This item via whatifdunedin:

### nbr.co.nz Monday May 25, 2015
Apple Fields’ directors fined $30,000 over filing omissions
By Suze Metherell
Justin Prain and Mark Schroeder, directors of the formerly NZX-listed Apple Fields, have been fined $30,000 each for failing to file financial statements for three years.
The Christchurch District Court found the two directors failed under the Financial Reporting Act to report Apple Fields’ accounts, according to Judge Emma Smith’s February judgment. The Financial Markets Authority brought the charges against the two directors after they failed to report the annual accounts for the financial years between 2011 and 2013. The FMA can seek fines of up to $100,000 for failure to report.
Christchurch-based Apple Fields, which listed on the NZX in 1986, was once New Zealand’s largest corporate orchardist and clashed with the Apple & Pear Marketing Board for the right to export fruit independently. The company moved into property development in the early 2000s, with Mr Prain appointed a director in 2002 and Mr Schroeder in 2003.
Apple Fields entered into a property development arrangement with Noble Investments in Christchurch, which was planning to subdivide land on Yaldhurst Rd into 254 residential sections as well as develop a village centre. After changes in the joint venture, Noble Investments could be considered a subsidiary and its accounts needed to be included in Apple Fields’ group accounts, according to the judgment. The Yaldhurst development stalled when Apple Fields ended up in a protracted legal battle with neighbouring landowners.
Read more

Related Posts and Comments:
23.2.16 DCC: DCHL half year result to 31 December 2015
19.2.16 Delta: Update on Yaldhurst subdivision debt recovery
15.2.16 Delta / DCHL not broadcasting position on subdivision mortgagee tender
30.1.16 DCC Rates: LOCAL CONTEXT not Stats —Delta and Hippopotamuses
● 29.1.16 Delta #EpicFail —Yaldhurst Subdivision ● Some forensics
● 21.1.16 Delta #EpicFail —Yaldhurst Subdivision
21.1.16 DCC LTAP 2016/17 budget discussion #ultrahelpfulhints
10.1.16 Infrastructure ‘open to facile misinterpretation’…. or local ignore
15.12.15 Noble property subdivision aka Yaldhurst Village | Mortgagee Tender
21.9.15 DCC: Not shite (?) hitting the fan but DVL
20.7.15 Noble property subdivision —DELTA #LGOIMA
1.4.15 Christchurch subdivisions: Heat gone?
24.3.15 Noble property subdivision —DELTA
23.3.15 Noble property subdivision: “Denials suggest that we have not learned.”
17.3.15 DCC —Delta, Jacks Point Luggate II…. Noble property subdivision

● 20.3.14 Delta: Report from Office of the Auditor-General

█ For more, enter the term *delta* in the search box at right.

Posted by Elizabeth Kerr


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