David and Natasha Sharpe of Bridging Finance in the company's downtown Toronto offices in 2019. The Ontario Securities Commission has alleged Bridging engaged in 'serious misconduct' in connection with several loans.Fred Lum/The Globe and Mail
Numerous loans made by Bridging Finance Inc. over the past four years struggled to perform, yet the problems were not always reflected in the lender’s books, court documents allege, which allowed Bridging to collect substantial fees.
From the start of 2017 to the end of 2020, Bridging earned more than $150-million from investors in the form of management fees and variable performance fees. These payments were calculated according to the net asset values, or NAVs, of the funds Bridging managed.
But those fund values were not always lowered as some of Bridging’s borrowers faltered and, in several cases, even entered insolvency proceedings, court documents show.
Bridging Finance’s largest borrower files for personal bankruptcy, citing $222-million in debt
The allegations are contained in the latest report authored by the court-appointed receiver for Bridging, which was placed under the control of PricewaterhouseCoopers LLP in April at the request of the Ontario Securities Commission.
The OSC has alleged Bridging engaged in “serious misconduct” in connection with several loans. This includes an allegation that a company controlled by Bridging’s largest borrower, Winnipeg businessman Sean McCoshen, made $19.5-million in transfers to the personal chequing account of David Sharpe, Bridging’s then chief executive officer, after Bridging advanced funds to Mr. McCoshen’s projects.
The new information adds to the uncertainty over the remaining value of Bridging’s assets and whether the private lender’s 26,000 retail investors will be able to recover their full investments. It also raises questions as to whether investors overpaid Bridging’s managers for many years.
PwC determined, after a review of Bridging’s portfolio, there was only one loan over the past four years that had its internal value reduced to reflect problems with it. PwC did not identify the borrower by name.
Earlier this year, a Globe and Mail review of court records showed several Bridging borrowers entered insolvency proceedings during the four-year window, 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.
What’s under Bridging Finance’s hood? A rare peek at the firm’s struggling loans
Bridging’s management fees and its 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 collected almost $48-million (plus US$4.5-million) in management fees, and it collected about $101-million in incentive fees, which were earned if the portfolio’s net asset value exceeded a predetermined threshold.
A summary of Bridging’s total loan book provided by PwC shows that, as of June 30, $509-million in loans – or a quarter of the $2-billion in total assets Bridging has under management – were made to companies that are either insolvent or embroiled in litigation with Bridging.
That figure includes Bridging’s largest outstanding loan, to Alaska-Alberta Railway Development Corp., which sought bankruptcy protection in June. The project was spearheaded by Mr. McCoshen, who intended to build a railway to deliver bitumen from the oil sands of Alberta to the ports of Alaska, but it never got past the conceptual stage.
The latest receiver’s report also provided a preliminary analysis of loans that were moved between Bridging funds, and PwC said it appears some of these transfers occurred after Bridging borrowers entered insolvency proceedings or were being sued by Bridging. Despite the uncertainty, Bridging’s transfer values did not appear to account for any potential impairments, PwC noted. The receiver said it will continue to investigate the treatment of these loans.
The report also alleges that, in July, the receiver became aware that the Toronto home of Mr. Sharpe was being privately marketed for sale. Mr. Sharpe was terminated from his position at Bridging, as was his wife Natasha Sharpe, the company’s former chief investment officer, shortly after PwC was appointed.
PwC said it subsequently entered into an agreement with lawyers for the Sharpes that stipulates that if the house is sold, any proceeds will be held in a law firm trust account.
Mr. Sharpe declined to comment.
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