Bridging Finance was unable to accommodate problem loans, potentially leading to an increase in management fees: Recipient

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David and Natasha Sharp of Bridging Finance at the company’s downtown Toronto offices in 2019. The Ontario Securities Commission said Bridging had committed “serious misconduct” in connection with several loans.

Fred Lam / Globe and Mail

Numerous loans provided by Bridging Finance Inc. over the past four years, failed to comply, but problems were not always reflected in the lender’s books, as the court filings claimed, which allowed Bridging to charge significant fees.

From early 2017 to late 2020, Bridging raised over $ 150 million from investors in management fees and variable performance fees. These payments were calculated based on the net asset value, or NAV, of funds managed by Bridging.

But the value of these funds has not always declined as some of Bridging’s borrowers hesitated and in some cases even went into bankruptcy, court documents show.

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The charges are contained in the latest report by the court-appointed manager of Bridging, which was transferred to the control of PricewaterhouseCoopers LLP in April at the request of the Ontario Securities Commission.

OSC stated that Bridging committed “serious misconduct” in connection with several loans. This includes the allegation that the company, controlled by Bridging’s largest borrower, Winnipeg businessman Sean McCoshen, donated $ 19.5 million to the personal checking account of David Sharpe, then CEO of Bridging, after Bridging provided funds for Mr. McCoshen.

The new information heightens uncertainty about Bridging’s remaining asset value and whether the private lender’s 26,000 retail investors will be able to fully recover their investment. It also raises questions as to whether investors have overpaid Bridging’s managers over the years.

PwC determined, after analyzing the Bridging portfolio, that there was only one loan in the past. four years whose intrinsic value has been reduced to reflect problems with him. PwC did not name the borrower.

Earlier this year, a Globe and Mail review of court records revealed that several Bridging borrowers entered insolvency proceedings over a four-year period, including Bondfield Construction Co. Ltd., which owed $ 44.3 million, Hygea Holdings Inc., which owed $ 130 million, and Audible Capital Corp., which had a debt of $ 16.3 million.

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Bridging’s management and incentive fees were based on monthly estimates of the net asset value of its loan portfolio. From 2017 to the end of 2020, the company raised nearly $ 48 million (plus $ 4.5 million) in management fees and about $ 101 million in incentive fees, which were received if the portfolio’s net asset value exceeded a predetermined value. threshold. …

PwC’s summary of Bridging’s total loan portfolio shows that as of June 30, $ 509 million in loans – or a quarter of the $ 2 billion of Bridging’s total assets under management – addressed to companies that are either insolvent or involved in litigation with Bridging.

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This figure includes Bridging’s largest outstanding loan to Alaska-Alberta Railway Development Corp., which filed for bankruptcy protection in June. The project was led by Mr. McCoshen, who intended for the construction of a railway to deliver bitumen from the oil sands of Alberta to the ports of Alaska, but this never passed the conceptual stage.

The latest recipient report also contains a preliminary analysis of loans that were transferred between Bridging funds, and PwC said some of these transfers appear to have occurred after Bridging’s borrowers entered insolvency proceedings or were sued by Bridging. … Despite the uncertainty, Bridging’s transfer value did not include any potential losses, PwC notes. The recipient said it will continue to investigate the handling of these loans.

The report also claims that the recipient learned in July that Mr. Sharpe’s Toronto home was up for private sale. Mr. Sharp was fired from his position at Bridging, as was his wife Natasha Sharp, the company’s former chief investment officer, shortly after PwC’s appointment.

PwC said it subsequently entered into an agreement with Sharpov’s lawyers that it is stipulated that in the event of the sale of the house, all proceeds will be kept in the trust account of the law firm.

Mr Sharp declined to comment.

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