Election Year : The following opinion is offered in the public interest. -Eds
Received from Christchurch Driver [CD]
Tue, 1 Mar 2016 at 4:17 p.m.
Your correspondent thought it useful to perform some financial excavation and unearth those precious first mortgage numbers that Graham Crombie and Mayor Dave Cull refuse to reveal in respect of the Noble Subdivision. They are the key to what Delta will eventually receive for its official $24M + debt on Noble. Your correspondent worked on the premise that if Delta is trying to hide something, it shouldn’t be too difficult to find at all. Your correspondent was not disappointed.
As they say in Delta out on the site, it was a good day, the ground was soft and the going was good. It didn’t take too long at all to get to the RL of the matter. (RL = Reduced Level…. excavator talk).
But inevitably, as is the fashion of these #EpicFail posts, there is evidence of continuing Delta stupidity, and yet another clumsy attempt to hide the facts from the ratepayers of Dunedin.
Your correspondent has long been curious about the first mortgagee at Noble Subdivision. Who they were, how much they were owed, what was their plan to exit out of this mess. Various entities had been mentioned in the media, but the company is Gold Band Finance. This is a tiny finance company : it has just $15.6M in TTA (Total Tangible Assets), and in August 2013 this one loan – in default – represented 21.30% of their total assets. Only 29% of the company’s lending is in property, and Noble was 70% of this. If Noble turned sour, this company was gone.
As it was, Gold Band breached their trust deed every year from 2009 until 2014 as a result of Noble, and twice had to pull its prospectus and not accept funds because the Trustee was so concerned about its position that it wouldn’t give Gold Band a waiver because the trust deed breaches were so serious.
(Memo To Delta Directors – Find that Trustee and appoint him as an auditor).
Gold Band then in August 2013 decided it needed to get most of this paralysed elephant off its back, so it could continue breathing and operating. Thus it sold part of its first mortgage debt…. to Delta.
Now the usual course of events is that when banks or finance companies are under pressure and want to sell distressed loans, they do so at a discount. That is, just as an example…. The face value is, say, a few million, the borrower is a deadbeat and hasn’t paid anything for years, the loan is in default and the neighbours are suing him for unconsented work (sound familiar ?). The seller would grab 50-60 cents in the face value dollar with both hands and “move on”, to borrow a term from the Cull lexicon.
Typically on land / development projects, a first mortgage will go no more than 40-50% of Loan to Value ratio (LVR) : But Gold Band had assessed the LVR at 71%, so even the first mortgage was far into the red zone. We will return to this in a later post.
From this, what a person of greater than room temperature IQ would say : “Dear Gold Band, I like the cut of your jib, the quality of your borrower and prospects of this mortgage. This (broken) mortgage is a bargain at full value ! Where do I sign ?!
This correspondent can hear the collective ratepayers’ prayer, “Do not say it… no, please do not say Delta paid full value” ….Readers, Delta did not pay full value. It paid more.
According to Gold Band’s public records, which are audited and thorough (Memo to Delta : Find those accountants and hire them also), the value of Gold Band’s Noble debt was 21.30% of TTA at August 2013. TTA in August 2013 was $17.3M. This meant a Gold Band Noble loan value of $3.73M. However, a curious thing occurred that same month. The loan value mysteriously jumped up to $4M. Gold Band smugly reported that after selling the $2.7M to Delta, “The loan amount was reduced from $4M to $1.3M in August 2013”.
Yes readers, once gain Delta lumbered into the Gold Band meeting room with a sign that said, “We’re desperate –please give us some security, we have money !” The concept that Gold Band were a very, very willing seller, that HAD to find a buyer appears to have escaped them completely. So while Delta have just further increased the amount of public funds at risk, Gold Band are sitting very nicely thank you. And while Delta and Graham Crombie think that interest is of no account, interest on the Gold Band $1.3M is accruing at an alarming rate : From August 2013 to August 2014 the capitalised interest grew the remaining Gold Band loan from the $1.3M to nearly $1.8M, an eye-watering 37% interest. It grew so much that the loan went back up to 11.30% of Gold Band’s TTA in August 2014. Entities associated with Gold Band Directors, Cup Investments Ltd and Opawa Garage Ltd then bought a further $1M off Gold Band to get the loan back into Trust deed Compliance. (Any one loan cannot be more than 10% of TTA). This correspondent can guarantee that Cup Investments capitalised penalty interest terms will be the same as Gold Band –or worse. At those rates, if Avanti is paid in say June 2016, then the Gold Band / Cup Investments piece of the first mortgage will have grown back from $1.3M to over $3.1M !!!
Your correspondent understands that Gold Band are tough operators. For them, dealing with DCC / Delta was the equivalent of shooting fish in a barrel.
It is clear reading the Gold Band information that Noble has been a near-death experience for them. But unlike Delta, they have been clear and transparent and credible in their reporting. I learnt more in a hour from Gold Band than all of Dunedin has learnt in a year from the obfuscations and dissembling of Messrs McKenzie, Cull, Crombie and others.
However, that is not the end of this story. There was another curious wrinkle with the $2.7M Delta deal where Gold Band laid down a very important marker to yet more Delta directorial manipulations that look to have just one purpose : to avoid public scrutiny.
Gold Band reported that it had entered into a deal with Delta to purchase $2.7M of its loan, but the notes to the financial reports show that in fact it was both AVANTI SECURITIES and Delta that purchased $2.7M of security. Delta in fact paid Gold Band $1.1M, and paid Avanti $1.5M. Cr Vandervis questioned if Delta in fact paid Gold Band $1.5M, and paid Avanti $1.5M and never received an answer. Mayor Cull instructed that this and other questions did not need to be answered (Council meeting 22.2.16). Your correspondent has that sinking feeling that something VERY STRANGE is occurring, particularly when we remember that chief executive Grady Cameron confirmed that Delta had spent $3.3M not $2.7M “strengthening its position”. This correspondent thinks there is strong probability that Avanti were asked / approached by Delta to take $1.5M of face value of the $2.7M, in order that Delta wasn’t left with the majority of the loan, which this correspondent understands would then have to be reported in Delta’s annual accounts. Delta then deposited funds into Avanti.
Finally, and most horribly, your correspondent thinks that a lot (or all) of the remaining $600,000 of the $3.3M Delta spent “strengthening its position” is likely to be front end prepaid interest (or some sort of other fee) paid by Delta to Avanti to cover the interest on $1.5M that Avanti have advanced to Gold Band. If the interest rate is roughly in line with the Gold Band rate of approx 37% per year, the $600,000 would provide around 18 months of interest cover to Avanti.
In summary, Delta have now enabled opportunistic finance firms to feed at the trough of DCC public funds. Delta looks to have misused ratepayer funds in an effort to engage in financial engineering to hide what they are doing.
Warren Larsen’s report was scathing of Delta’s earlier attempts to do this on the Luggate subdivision. It is incredible that Delta would attempt this again.
Tomorrow’s post will continue with an examination of what is really happening with the mortgagee sale.
Stay tuned, and braced with cups of tea. Tomorrow’s news is not good.
Related Posts and Comments:
● 29.2.16 Delta #EpicFail Noble Subdivision : NBR interested in bidders
● 28.2.16 Delta #EpicFail Noble… If I were a
rich man / Delta Director
● 27.2.16 Delta #EpicFail Noble Subdivision Consent : Strictly Optional
● 27.2.16 Delta #NUCLEAR EpicFail —Noble Subdivision : Incompetent…
● 25.2.16 Delta #EpicFail: Mayor Cull —Forced Sale Fundamentals 101
● 24.2.16 Delta #EpicFail —Noble Subdivision: Cameron, Crombie & McKenzie
● 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
● 14.5.14 (via DCC website) Larsen Report February 2012
A recent governance review of the Dunedin City Council companies was conducted by Warren Larsen.
● 20.3.14 Delta: Report from Office of the Auditor-General
Inquiry into property investments by Delta Utility Services Limited at Luggate and Jacks Point
█ For more, enter the term *delta* in the search box at right.
Posted by Elizabeth Kerr