In June, court-appointed monitor KSV Restructuring Inc. released a court-ordered report into the preinsolvency conduct of former child actor Robby Clark’s companies, finding millions in spending was 'unjustifiable' and 'accelerated the applicants’ liquidity crisis that resulted in these CCAA proceedings.'Marc Durocher/The Globe and Mail
The court-ordered breakup of former child actor Robby Clark’s insolvent 400-property real estate portfolio has devolved into a multiparty scramble to find value amid the wreckage.
The unwinding of $144-million in debt Mr. Clark amassed before the collapse of his companies (referred to as Balboa et al. in court documents) comes after attempts to market the properties as a package failed. While some lenders are being given a chance to bid on the properties they loaned against, many are decrying the expensive buyout terms, the barrage of communications urging different collective action options and expressing severe misgivings about the entire attempt to restructure under the Companies’ Creditors Arrangement Act.
“Why are they forcing me to pay $40,000 when there’s no benefit to me? Why am I getting dinged to pay legal fees for lawyers I’m fighting against? Why did I get dragged into this,” said Peter Lindstrom, a private mortgage investor who holds a first mortgage on a house purchased by Mr. Clark’s companies in Sault Ste. Marie, Ont.
On Sept. 20, first-ranking lenders like Mr. Lindstrom faced a deadline to make what’s known as a “credit bid” to take over ownership of Balboa homes they loaned money against. The credit bid allows lenders to convert, for example, a $125,000 mortgage they are owed into ownership of a home with an appraised value of perhaps $150,000.
The term sheet put together by court-appointed monitor KSV Restructuring Inc. – which is running the sales and credit bid process – requires a non-refundable $10,000 deposit, and for successful bidders to pony up more cash at closing time to pay for a portion of the $15-million in Debtor in Possession loans that were spent on everything from unpaid property taxes and renovations to professional and legal fees during the eight-month-long insolvency.
Not every lender faces the same sized bill for the DIP: some properties require as little as $8,000 extra, others face sums closer to $100,000. Two of the more expensive credit bid homes actually don’t exist: they are vacant lots in Timmins, Ont., at 261 Kimberly Ave. (owing $106,995.69) and 269 Kimberly Ave. (owing $134,532.08). Both homes were condemned and torn down by the municipality after being abandoned and damaged by fire.
“Part of my DIP fees of $58,000 was almost $30,000 in renovations,” said Cathy Hugh, a private lender who has raised questions about KSV-approved spending on renovations that Mr. Clark’s company, SID Management, was tasked to perform, even as allegations about misappropriation of lender funds and contractor cost inflation were swirling around Balboa.
In June, KSV released a court-ordered report into the preinsolvency conduct of Mr. Clark’s companies, finding millions in spending was “unjustifiable” and “accelerated the applicants’ liquidity crisis that resulted in these CCAA proceedings.”
Two of the more expensive credit bid homes actually don’t exist: they are vacant lots in Timmins, Ont., at 261 Kimberly Ave. (owing $106,995.69) and 269 Kimberly Ave. (owing $134,532.08).Marc Durocher/The Globe and Mail
Ms. Hugh is bidding on her own, but said she has been approached by a number of groups and syndicates trying to sway her to work with them.
One large group of lenders has emerged to push for the creation of a company called B.I.G North Capital, which claims to have secured pledges of more than 200 properties and more than 150 lenders. BNC is offering to cover the DIP and closing costs for lenders to help them credit bid, after which they agree to transfer the properties to its ownership in return for shares in the new company and then take over management and rehabilitation of what are mainly rental properties.
Not every property is eligible to join the BNC syndicate though, according to corporate counsel Geoff Rabideau.
“There are some properties that were not taken in – a demolished property [for instance] – those were not worthwhile taking in,” he said, referring to those like the Kimberly Avenue properties. Mr. Rabideau estimates only about 60 to 100 properties will be bid on by individual lenders and not join a syndicate. Those lenders “believe they can turn around and sell it,” he said.
For those who can’t afford their own credit bid or don’t want to work with any third parties, KSV has arranged a plan of last resort: A property management corporation to be run by an appointed chief executive officer where any property that doesn’t get bid on will be pooled together.
The KSV pool is also the only proposal that offers any chance of repayment for the unsecured promissory note lenders – who are sitting on $54-million of virtually worthless personal guarantees. Many of these promissory note holders have sent out e-mails advocating for the pool option.
“It provides an opportunity to potentially help those in underwater positions, including second mortgage holders and unsecured promissory note holders, each of whom contributed capital to purchase or improve the property, and, in some instances, service the mortgages,” wrote Birgitta Endemann, a representative of the unsecured lenders.
Mr. Rabideau responded to Ms. Endemann’s e-mail, claiming elements of it were inaccurate.
“The unsecured argument is: BNC is taking away their opportunity to collect. It’s unfounded and if you look at the numbers it’s just not possible,” Mr. Rabideau said in an interview. “Right from the beginning, the value of the mortgages was more than the value in the portfolio.”
On message boards and in e-mail chains, the debate over the right course continues to rage even as the first deadline has passed. But an increasing number of lenders are coming around to the position that while lending money to Mr. Clark’s companies was a mistake, the court process to untangle his collapse may have been one, too.
“The judge made a mistake to allow this to go to a CCAA,” Ms. Hugh said. “They were trying to find a solution that saves money for everybody; it was a pipe dream and it’s cost us all $15-million more.”