The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Resolve’s ability to service the $100 million worth of bonds that plugged the hole in Bank of the Bahamas’ balance sheet will “soon” be impaired unless it can sell its distressed properties, Tribune Business was told yesterday.

James Smith, the special purpose vehicle’s (SPV) chairman, said it had encountered several obstacles in its efforts to sell the real estate and other assets it inherited from the troubled BISX-listed bank in October 2014.

The former Central Bank governor revealed that some of the 13 ‘bad borrowers’, whose loans and related collateral were transferred to Bahamas Resolve, were “denying” the SPV and its managers access to their properties.

As a result, Mr Smith said Bahamas Resolve and its managers, the Deloitte & Touche accounting firm, have been unable to properly assess the current ‘market value’ of these assets - prohibiting it from releasing accurate financial information on its affairs to the public.

He then revealed for the first time that the proceeds from Bahamas Resolve’s ‘distressed asset’ sales are intended to both finance its ongoing operations and pay the interest due on the bonds received by Bank of the Bahamas as part of its $100 million ‘bail-out’.

Mr Smith said Bahamas Resolve has to-date been self-funding, having received the proceeds from one real estate sale that occurred in January 2015, which the bank had already set in motion.

He indicated, though, that Bahamas Resolve was not close to sealing any other deals, despite coming close on several occasions. These sales, Mr Smith added, had been frustrated by the inability of potential buyers to obtain financing.

“Resolve needs to fund itself from the proceeds of sales,” he told Tribune Business. “One sale, in January 2015, had been completed, and the proceeds from it have been used up to now to handle any expenses the company undertakes.”

Mr Smith added that the bulk of Bahamas Resolve’s costs to-date had been the professional fees paid to Deloitte & Touche in return for its services as the SPV’s manager.

He declined to reveal how much the accounting firm has been paid, but acknowledged that the company’s cash balance was shrinking rapidly following a year without any distressed asset sales.

“It’s obviously dwindling, and replenishment can only come from another sale,” Mr Smith told Tribune Business. “Another sale is being frustrated by legal and other matters.

“One of our major contributions is the servicing of the bonds at Bank of the Bahamas. We’ve paid that so far from the proceeds [of the first sale], but unless we get another sale soon, we’re going to have to take a short-term facility and apply it until a sale comes through.”

Should such a scenario ultimately occur, Mr Smith said one option was for the Government to take over paying the interest on Bank of the Bahamas’ bonds temporarily, until a Bahamas Resolve asset sale was consummated.

The proceeds could then be used to repay the Government, he added, while another option was for Bank of the Bahamas “to hold off” on demanding its interest payments.

Mr Smith, though, acknowledged that this would “defeat the whole purpose of the SPV”, and impact a still-troubled bank that is struggling to survive and needs recapitalisation.

“Resolve itself is kind of an interim, medium-term measure to solve Bank of the Bahamas’ problems with the regulator, the Central Bank of the Bahamas, and give the Government breathing room as the majority shareholder to prepare a rescue plan for the bank going forward. Then Resolve will disappear,” Mr Smith told Tribune Business.

The reference to the Central Bank alludes to non-compliance by Bank of the Bahamas with the former’s key minimum capital ratios, which was initially solved by the October 2014 ‘bail out’.

That saw a collective $45.2 million in ‘bad loans’, belonging to 13 delinquent borrowers, transferred to Bahamas Resolve, with the subsequent ‘hole’ in the bank’s balance sheet plugged by $100 million worth of government bonds.

Mr Smith, though, said that even if Bahamas Resolve were to sell its distressed assets for ‘market value’, there would still be a ‘hole’ at Bank of the Bahamas that the Government (Bahamian taxpayer) will have to fill.

“Quite frankly, given the valuations we have seen as to what we can expect, even if we sold all the properties going forward into the future, the Government has to deal with the gap [at Bank of the Bahamas] and get authorisation to fill that gap,” he told Tribune Business.

Mr Smith said Bahamas Resolve was being impeded in its efforts to determine the current ‘market value’ of its distressed assets, indicating that the collective worth was likely to be less than the $45.2 million assigned to them at the time of transfer.

“We kind of have to develop an opening valuation,” he said of Bahamas Resolve’s assets. “There’s always a difference between the book value of assets transferred to the company and market value.

“We have got recent valuations on a number of the properties, and doing as many as we can. We have a couple of properties where the owners are denying us access, so we’re unable to do the valuations.

“We have put in the hands of the lawyers, who are going to take legal action to allow access to the properties to get the valuation done.”

Mr Smith acknowledged that the legal process was “not easy”, and likely to be time-consuming, given that some of the 13 ‘bad borrowers’ had taken out previous actions against Bank of the Bahamas.

He added, though, that these issues are preventing Bahamas Resolve from disclosing its financial affairs to the public, as any report will be incomplete without the asset valuations.

Hubert Chipman, the St Anne’s MP, yesterday questioned in the House of Assembly when the audited financial statements for Bahamas Resolve will be published, and how it is financing its operations.

Mr Smith said Bahamas Resolve had initiated sales processes for all those properties to which it has clear title, but buyer financing woes were preventing the closure of any deals.

“There are any number of inquiries, going so far as to clinching a deal, but then funding becomes an issue,” he explained.

“All this is being done against the backdrop of an extremely tight mortgage market, where any number of foreclosures have been going on for six to seven years. It’s a very long, drawn out process.”