Equititrust?

[No Trust]

The Ghosts of MFS

Surely the Directors of Equititrust have heard of "Energy Travelling" from one disaster to another..

Installing the Ghosts of MFS was one monumental error..


It’s hard to see the “LIGHT” when enveloped in Darkness.. " A wise old man"

 

[ASICK]

You guys have two simple choices, (1) deal with your present manager, or (2) replace your manager with another one.

Why on earth would you feel the need to continue to reward your present manager in the circumstances?

Be careful of these words ( from http://www.smh.com.au/business/equititrust-freezes-distributions-20110406-1d4ey.html )

"... In a prepared statement, the Equititrust founder, Mark McIvor, said the company is reviewing the structure of its two major funds ..."The current structure of the funds restricts us from facilitating new investment inflows which would allow us to pay down the debt in an orderly fashion as we had previously envisaged,'' Mr McIvor's statement said. ... "

"... Yesterday, Mr McIvor said the company is ''well advanced in the forging of strategic partnerships'' with wealth advisory and asset management operations. ''These partnerships may culminate in mergers … ," ..."

You might start to hear 'fire sales' soon .. and you'll be so scared that you might just about agree to anything (that'll be the new 'strategy' that'll be put to you as a review of the funds' structure which restricts new investment).

Many have gone before you, and you have to learn from their mistakes.

You should replace the manager as soon as possible. In fact, you should be out looking for a new manager right now.

(I have no units in your fund and I have no interest in buying into it)

 

[seamisty]

Re: The Ghosts of MFS

Surely the Directors of Equititrust have heard of "Energy Travelling" from one disaster to another..

Installing the Ghosts of MFS was one monumental error..


It’s hard to see the “LIGHT” when enveloped in Darkness.. " A wise old man"

No Trust ASIC was contacted by hundreds of extremely concerned MFS Premium Income Fund investors with serious concerns relating to breaches of loan covenants and non disclosure in early 2008.

'INTERIM REPORT FOR HALF YEAR ENDED 31 DECEMBER 2007
The Fund Auditor, Price Waterhouse Coopers, has completed the Fund's interim report for the half year ended 31 December 2007.
The report notes;

A breach of a ratio covenant of loan facility with a third party bank resulting in interest bearing liabilities of $184 million becoming repayable on demand as at 31 December 2007 (discussed further below under "Loan Facility Agreement");


Uncertainty surrounding MFS Limited and its related entities which has impacted the recoverability of certain assets of the Fund'

It took ASIC until Nov 2009 to launch civil proceedings with still no charges having been made to date!!!

'ASIC alleges that in November 2007, officers of MFSIM caused PIF to transfer $130 million to MFS Administration so that MFS Administration could use those funds to pay financial obligations of other MFS subsidiaries, including $103 million owed to Fortress Credit Corporation by MFS Castle.'


MFS was still taking PIF investors money in Jan 2008!

I understand Kennedy and Anderson are both under scrutiny as to their previous involvement with the collapse of MFS and the subsequent alleged missapropiation of money from the PIF and some dodgy documents.

Should there not be some legislation in place to suspend directors/staff of being in a position to handle investors money in any way, shape or form until they are cleared of any wrong doing? Don't police get suspended from duties if they are under any sort of cloud until proved innocent?

Shouldn't ASIC and other so called regulators be held accountable for not acting sooner on information they were given if those alleged of financial misconduct are found guilty but have been allowed to still hold similar well paid positions in the interim where it is found that other investors are financially affected due to poor decisions made by those same people?

Seamisty

 

[ASICK]

The simple reality is that ASIC is not a prudential regulator - and if a manager makes poor investment decisions, that is not a matter for ASIC. ASIC will not protect you against an incompentent manager. If you sign up for something, then that's your problem.

Apart from the obvious issues arising out of this mess, two other issues stand up like the proverbial, (1) the fact that Equititrust Limited has been making good impairments in the fund's loans without advising members, and (2) there doesn't seem to be a cash income stream from the loans (as opposed to cash received by way of asset sales).

(1) at least in my mind, deprived investors in the affected fund/s from making prudent decisions about the future of their investments at a much sooner stage, and (2) indicates that interest paid to investors probably was accounted as a consequence of accrued (and not cash) income and paid from the sale of assets.

How is it possible for a manager to race around paying out impairment without advising investors? I would have thought this a matter ASIC should indeed be interested in.

Issue (2) is precisely the outcome for every defective fund that I'm aware of.

I'm aware of the structure of loans made by managed property funds, but each fund should be compelled to report CASH receipts for each loan, with each loan being separately accounted for in order that investors may scrutinize the precise state of their investments.

The total lack of disclosure in managed property funds is the vehicle by which shonky managers are able to ride the good times, and then ride the bad times.

The longer the returns to investors are eked out, the more desperate investors become.

Just wait til next year, or the year after .. you'll get the feeling.

 

[klua]

You guys have two simple choices, (1) deal with your present manager, or (2) replace your manager with another one.

Why on earth would you feel the need to continue to reward your present manager in the circumstances?

................
You should replace the manager as soon as possible. In fact, you should be out looking for a new manager right now.

(I have no units in your fund and I have no interest in buying into it)

I dont have a copy of the PDS to hand but my understanding of the PDS is that if ET is replaced as manager then the capital guarantee looses its subrogation and then ranks equally with us unitholders in any distribution.
Perhaps someone can confirm if this is the case?

If this is the case then replacing the manager might cost us dearly.

 

[ASICK]

I dont have a copy of the PDS to hand but my understanding of the PDS is that if ET is replaced as manager then the capital guarantee looses its subrogation and then ranks equally with us unitholders in any distribution.
Perhaps someone can confirm if this is the case?

If this is the case then replacing the manager would cost us dearly.

I'd be guessing, but I couldn't imagine there's any guarantee left anyway, especially since Equititrust Limited has (from the smh article of today), "... flagged potential investor losses ...". For investors to lose money, it must mean the guarantee has been lost.

** Deleted **

The only way you'll get a real look inside your fund is to put a new manager in, and have that manager conduct a legal review of your fund, and IMO, the sooner you do that, the better.

However, you guys are the investors, and it's your money.

LATER ADD ON (PDS Page 18):
"... The Capital Warranty Investment remains for so long as Equititrust remains the responsible entity of the Fund. In the event Equititrust ceases to be the responsible entity, then (subject to any Fund financier requirements) the Capital Warranty Investment automatically converts to an Access investment ranking equally with other investors. ..."

 

[ASICK]

From the PDS:

"... If any investor, other than the subordinated Capital Warranty unit investor, does not receive, or have accrued, their Benchmark Rate in a particular month during the term of their investment, Equititrust is not entitled to receive any management fees
Management Fee. ..."

http://www.equititrust.com.au/Pdfs/Benchmark_Update_Dec_2010.pdf

Income Fund - Benchmark Disclosure Update 31 December 2010, page 10:

"... The Benchmark Rate is the distribution rate that must be paid monthly to ordinary unit investors, or accrued if not paid monthly, before Equititrust is entitled to be paid its management fees. ..."

"... Equititrust does not represent that investors will receive their Benchmark Rate of distribution. As mentioned above, the Benchmark Rate is the hurdle rate that must be achieved before Equititrust is entitled to its management fees. ..."

http://equititrust.com.au/Pdfs/Benchmark_Update_Dec_2010.pdf

 

[klua]

I'd be guessing, but I couldn't imagine there's any guarantee left anyway, especially since Equititrust Limited has (from the smh article of today), "... flagged potential investor losses ...". For investors to lose money, it must mean the guarantee has been lost.

......

LATER ADD ON (PDS Page 18):
"... The Capital Warranty Investment remains for so long as Equititrust remains the responsible entity of the Fund. In the event Equititrust ceases to be the responsible entity, then (subject to any Fund financier requirements) the Capital Warranty Investment automatically converts to an Access investment ranking equally with other investors. ..."

The Capital Guarantee shoulnt yet be lost. The flagging of investor losses would indicate that the entire capital gurantee will be lost in the future and then additional shareholder funds will be lost on top of the capital guarantee is gone.

If the fund manager is replaced then all losses from $1 will be shared by everyone.

The other section of the PDS that you referr to in your next post is really interesting. Thanks for pointing that out.

 

[ASICK]

... If the fund manager is replaced then all losses from $1 will be shared by everyone. ...

If the capital warranty is gone, then all investors will share losses in any event, with the existing manager, or with a new one. At least a new manager will cast an arm's length eye over past transactions.

There is only three ways the manager will gain a management fee, and they are (1) restructure the fund (meeting of members), (2) restructure the loans in order to come up with income from the loans (in lieu of capital), or (3) accrue the interest distributions. [(2) might not be legal so I'm not sure if it's permitted]

Clearly the manager will not be prepared to run the fund for free, and clearly investors can't sit back and speculate about whether or not the manager is in fact drawing fees.

In the case loans are restructured, then I think investors need to know whether an income stream has been developed whilst deferring capital payments. As mentioned, I'm not sure such a restructure would be permitted in the circumstances, and I'm not suggesting that the manager would do anything improper.

If interest payments to members are accrued in order to draw management fees, then members ought to know just how the manager intends to make good such payments in the circumstances.

It will also be important for members to be informed whether management fees are suspended for the same period of the suspension of the interest distributions. You mightn't be told unless you ask.

None of this happened overnight, although from investors' perspectives, they probably thought it did. However, the manager hasn't been thinking that way: From today's SMH article, "... Yesterday, Mr McIvor said the company is ''well advanced in the forging of strategic partnerships'' with wealth advisory and asset management operations. ..."

The banks aren't interested and market capital raising via a PDS is not permitted, what's left? Oh.. you don't really want to know.

 

[kostag]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

No Virginia - there isnt any Santa Claus.....

The Capital Guarantee shoulnt yet be lost. The flagging of investor losses would indicate that the entire capital gurantee will be lost in the future and then additional shareholder funds will be lost on top of the capital guarantee is gone.

If the fund manager is replaced then all losses from $1 will be shared by everyone.

The other section of the PDS that you referr to in your next post is really interesting. Thanks for pointing that out.

 

[klua]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

No Virginia - there isnt any Santa Claus.....

I am surprised and dissappointed you made this comment.

I am surprised because to my knowledge there is no evidence that the Guarantee has gone.

I am disappointed since in this thread I have assisted you overcome a very basic financial misconception and would have expected a more courteous reply.

However this isnt getting my money back and if the points correct that ET will not be getting management fees while we do not receive interest then we have some breathing space to ascertain the facts of the situation.

 

[zencorp]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

I am surprised and dissappointed you made this comment.

However this isnt getting my money back and if the points correct that ET will not be getting management fees while we do not receive interest then we have some breathing space to ascertain the facts of the situation.

WHO IS PAYING DAVID KENNEDY HIS 250K A YEAR THEN? IS MARKY BOY DIPPING INTO IS SUNDAY CAR MONEY?

 

[ASICK]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

... I am surprised because to my knowledge there is no evidence that the Guarantee has gone. ...

Well, the outcome is going to depend on what 'flagging investor losses' (SMH 7 April 2011) means. I would have thought investors would only start losing when the warranty had been used up, because up until that time, the warranty would offset any loss.

Secondly, there is no proof that the manager isn't drawing a management fee for the period investors' interest distributions are suspended. Suspended does not mean payable at a later date, suspended means the distributions are not to be paid.

Mere non-payment of interest distributions isn't enough to ensure non-payment of management fees. It would be wise for investors to press the manager to disclose whether management fees will or will not be suspended while interest distributions are suspended.

Time is always on management's side - once income dries up and capital is whittled away by fund expenses and inflation, it's the investors who will always suffer in these screwed up schemes.

 

[zencorp]

Don't forget the Capital Warranty Investment allows Equititrust to receive money from the Funds. It might not be phrased as Management Fees but they are definitely receiving money.

 

[klua]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

Well, the outcome is going to depend on what 'flagging investor losses' (SMH 7 April 2011) means. I would have thought investors would only start losing when the warranty had been used up, because up until that time, the warranty would offset any loss.

Agreed.
But "flagging investor losses" does not mean that all the guarantee has been used up at this point in time. just that it is expected it will be used up and then the investors will cop the losses. But the point I was making is that if the Manager is replaced at a point in time before all the guarantee is used up the we will loose the benefit of any unused guarantee.

Secondly, there is no proof that the manager isn't drawing a management fee for the period investors' interest distributions are suspended. Suspended does not mean payable at a later date, suspended means the distributions are not to be paid.

The precise wording used in the letter to investors is that the board has resolved to "postpone all distributions".

So now we get down to definitions. "postponed' "paid" "accrued" etc

The paragraph you cited and with the preceeding paragraph are interesting.

Mere non-payment of interest distributions isn't enough to ensure non-payment of management fees. It would be wise for investors to press the manager to disclose whether management fees will or will not be suspended while interest distributions are suspended.

Time is always on management's side - once income dries up and capital is whittled away by fund expenses and inflation, it's the investors who will always suffer in these screwed up schemes.

 

[ASICK]

Re: Equititrust : what CAPITAL WARRANTY - it is long gone girls and boys

... The precise wording used in the letter to investors is that the board has resolved to "postpone all distributions".

I'm not in possession of the letter so I'm only able to work from the media reports.

'Postphone all distributions' would be of greater concern to me as an investor than would the 'suspension of distributions'.

My guess (and that's the best I'm always able to do) is that postphoning distributions raises the exclusion that the manager is entitled to management fees if interest distributions are accrued (as postphoning suggests), yet there is no guarantee that investors will in fact be able to receive those fees.

Either the fund has the capacity to make interest distributions, or it does not.

If it is the case that most loans are substantially impaired, then what is the source of income sufficient to cover management fees, bank charges, interest, and fees and general fund expenses and then be capable of paying out interest distributions?

Surely the manager cannot draw interest payments from non-performing lenders in preference to capital protection by way of foreclosure?

This is where capitalization of interest goes so badly wrong in badly damaged funds - a theoritical income which in most cases cannot crystalize into actual cash.

Investors remain at continuing risk while non-performing loans aren't foreclosed on.

 

[No Trust]

Interim Financials

The Equititrust Crisis having now reached the next Phase, it is essential that the Interim Financials are produced as promised. This is clearly now a company on the brink and for investor’s transparency as to the financial position is now essential.

The Interim Financials were promised to be posted on the Equititrust Website well prior to the ASIC lodgement date of the 16 March 2011.

When a company does not issues its financials as promised you know something is going on.

I encourage ALL investors to call Equititrust on Monday morning and ask for an explanation as to why the financials have not been issued..

 

[kostag]

Re: Equititrust: TITANIC - do you want a deck chair on A deck or B deck

when we start to debate "postpone" "defer" etc - we are all just becomign desperate and delusioned.

We are not getting paid.

How can any of the "non-cash" CAPITAL WARRANTY (whatever that means) be in tact - it was not there as a reserve in cash at any stage (as Choice Magazine pointed out three years ago!)

90% of the loan book is "deferred" and or "impaired" and this did not start lats month - so cash flow has come from where....

a) INCOME? no

b) NEW FUND RAISING? No - ASIC froze that one?

c) CAPITAL WARRANTY RESERVE? No - that is an "accounting creation" it's not cash....

well, where has each months interest come from for the past however many months?

Well as FOREST GUMP said "I am just a simple man, but I know what a (scam) is"....

It has come from REALISATIONS from the few good loans that were left - so CAPITAL was being collected and paid to us all as INTEREST..... and you guessed it, we have been paying TAX in INCOME but we are yet to take a CAPITAL HIT.....

now, if I am WRONG - someone just tell me/show me and then I will shut up and go away..... until then - lets play word games of what does what mean..... we have to play that game because we are not getting facts and must rely on MEDIA and leaks on web-sites like this to try and second guess......

 

[ASICK]

Re: Equititrust: TITANIC - do you want a deck chair on A deck or B deck

when we start to debate "postpone" "defer" etc - we are all just becomign desperate and delusioned.

We are not getting paid.

How can any of the "non-cash" CAPITAL WARRANTY (whatever that means) be in tact - it was not there as a reserve in cash at any stage (as Choice Magazine pointed out three years ago!)

90% of the loan book is "deferred" and or "impaired" and this did not start lats month - so cash flow has come from where....

a) INCOME? no

b) NEW FUND RAISING? No - ASIC froze that one?

c) CAPITAL WARRANTY RESERVE? No - that is an "accounting creation" it's not cash....

well, where has each months interest come from for the past however many months?

Well as FOREST GUMP said "I am just a simple man, but I know what a (scam) is"....

It has come from REALISATIONS from the few good loans that were left - so CAPITAL was being collected and paid to us all as INTEREST..... and you guessed it, we have been paying TAX in INCOME but we are yet to take a CAPITAL HIT.....

now, if I am WRONG - someone just tell me/show me and then I will shut up and go away..... until then - lets play word games of what does what mean..... we have to play that game because we are not getting facts and must rely on MEDIA and leaks on web-sites like this to try and second guess......

The capital warranty is real money.

The following is general comment only:-

Many of these types of funds lend money on the basis that the interest for the period of the loan is included upfront with the loan.

Many developers cannot repay these loans until they actually start selling properties into the market, so there is no expectation that cash will be received, so the 'income' is accounted for on an accrued basis.

If one sold a tv set for $1000 cash, then cash is exchanged for the tv set. Selling a tv set for $1000 on the basis that the $1000 cash would be paid in ten months time could be accounted for at $100 per month for each of ten months. No money is actually received until (hopefully) the tenth month - the accrual accounting process records the $100 each month even though the money has not been received.

If a loan (which included interest) was not paid on time, then the manager has two options, (1) foreclose, or (2) capitalize the interest, that is, extend the period of the original loan and start charging interest on the loan (which already included interest).

In the event the interest is capitalized, then this too is accounted for on an accrual basis.

It's also possible to lend to one entity, and then at the end of the period, lend to a related entity which then pays out that first lender's obligation and the whole process repeats itself without even a cent of capital or interest being paid.

Cash flow to fund distributions is an essential element in development lending - it might be the case that in particular funds, that the cash flow is syphened from the inflow of investor deposits - these are the funds which are most at risk, because if investor sentiment turns sour, then the demand for return of capital will necessarily cause the fund to freeze redemptions.

If loans are not repaid, and if a large portion of anticipated interest becomes capitalized, then in most cases, profits will be declared from accrued income, but distributions will most likely be paid from assets sales.

The foregoing are by way of general comment only and are not intended to refer particularly to your fund.

However, your 18 February 2011 update, page 4, states in part, "... Historically, for most development loans and some commercial loans undertaken by the Fund, we have capitalised interest, as this is the nature of the lending performed by the Fund, whereby the interest is included in the loan facility and deducted progressively. Over the past three months, however, we have, with few exceptions, stopped the capitalisation of interest so as to allow the loan to go into default and thus enable Equititrust to take enforcement action for the control of it. ..."

Did your manager act promptly to foreclose on non-performing loans and thereby cease accounting for accrued (and not cash) interest?

Did the manager roll over loans (capitalize interest) which were not performing rather than foreclose?

What is the impairment values for each of interest and capital?

You should keep in mind that since interest has been accounted as an asset, any failure to bring that interest into the fund is a liability.

Any failure by a manager to act promptly in foreclosing on non-performing loans means that investors are at risk of seeing no more than their own capital (capital loss) being fed back to them as (taxable) 'distributions'.

Losing one's capital is one thing, but paying tax on any return of part of that capital in the guise of 'distributions' adds insult to injury.

 

[kostag]

Re: Equititrust: TITANIC - ACCRUAL Vs CASH + apology to DAVID KENNEDY

I AGREE..... but..... the CAPITAL WARRANTY is not real money..... I agree that under ordinary circumstances, the accrual method of accounting and matching of accrued income to expenses (paid and accrued) is normai business practice. That would not be an issue ordinarily - BUT in this case: a number of investors have been told quite specifically that the "founder has $70M of his own money in the fund" - now, even accepting the accrual accounting argument re: earnings comprising both actual cash and accrued interest income etc - that is a long way from "the founder having $70M of his own money in the fund"..... - I do agree that Members Funds in this case seem to comprise LOAN ESTABLISHMENT FEES and INTEREST EARNED AND NOT PAID etc and that the OWNER has not drawn these down yet BUT that is not the POLICY nor situation that I believe anyone understood to be the case.... take an example: KING CON - gets a $70M loan from EQUITITRUST - based on history, track record, the type of asset etc - we could all assume that full repayment was/is unlikley (to be kind) - now lets assume that a 10% fee is accrued for LOAN SETUP etc - (NOW THIS IS NOT WHAT OCCURRED IT IS JUST ME SPECULATING for a moment so bear with me ) so $7M is credited straight away to MEMBERS' FUNDS.... correct..... would this entitle anyone to say "I have $7M of my own funds invested in the fund" ? Because that is what has happended in this case except it is on accumulated BUT unpaid/not received INTEREST INCOME.... I beleive that this is correct and if I am wrong and someone corrects me on this I will be the first to retract....

SIMPLY a lot of people drew comfort knowing that their investment was ranking ahead of the FOUNDERS own hard cash - when it is not the FOunders hard cash - that comfort evaporates....

Finally, in regards to SPECULATION - I have on a number of times attributed the false postings of BUFFETMAN to DAVID KENNEDY.... I wnat to apologise BECAUSE THERE IS NO EVIDENCE that the PC which both BUFFETMAN and DAVID KENNEDY use is exclusively DAVID KENNEDY's computer - we can all form a view of whether key executives would be relegated to having to share a PC with others or not etc BUT agsin, for my part that would be speculation and this WEB FORUM cannot maintain legitimacy in the market place if it is acts as a conduit for speculation - so I simply stick to the facts - that I understand that postings by BUFFETMAN and DAVID KENNEDY are form the same PC and I have no evidence that BUFFETMAN and DAVID KENNEDY are one and the same.

I apologise to all concerned.

The capital warranty is real money.

The following is general comment only:-

Many of these types of funds lend money on the basis that the interest for the period of the loan is included upfront with the loan.

Many developers cannot repay these loans until they actually start selling properties into the market, so there is no expectation that cash will be received, so the 'income' is accounted for on an accrued basis.

If one sold a tv set for $1000 cash, then cash is exchanged for the tv set. Selling a tv set for $1000 on the basis that the $1000 cash would be paid in ten months time could be accounted for at $100 per month for each of ten months. No money is actually received until (hopefully) the tenth month - the accrual accounting process records the $100 each month even though the money has not been received.

If a loan (which included interest) was not paid on time, then the manager has two options, (1) foreclose, or (2) capitalize the interest, that is, extend the period of the original loan and start charging interest on the loan (which already included interest).

In the event the interest is capitalized, then this too is accounted for on an accrual basis.

It's also possible to lend to one entity, and then at the end of the period, lend to a related entity which then pays out that first lender's obligation and the whole process repeats itself without even a cent of capital or interest being paid.

Cash flow to fund distributions is an essential element in development lending - it might be the case that in particular funds, that the cash flow is syphened from the inflow of investor deposits - these are the funds which are most at risk, because if investor sentiment turns sour, then the demand for return of capital will necessarily cause the fund to freeze redemptions.

If loans are not repaid, and if a large portion of anticipated interest becomes capitalized, then in most cases, profits will be declared from accrued income, but distributions will most likely be paid from assets sales.

The foregoing are by way of general comment only and are not intended to refer particularly to your fund.

However, your 18 February 2011 update, page 4, states in part, "... Historically, for most development loans and some commercial loans undertaken by the Fund, we have capitalised interest, as this is the nature of the lending performed by the Fund, whereby the interest is included in the loan facility and deducted progressively. Over the past three months, however, we have, with few exceptions, stopped the capitalisation of interest so as to allow the loan to go into default and thus enable Equititrust to take enforcement action for the control of it. ..."

Did your manager act promptly to foreclose on non-performing loans and thereby cease accounting for accrued (and not cash) interest?

Did the manager roll over loans (capitalize interest) which were not performing rather than foreclose?

What is the impairment values for each of interest and capital?

You should keep in mind that since interest has been accounted as an asset, any failure to bring that interest into the fund is a liability.

Any failure by a manager to act promptly in foreclosing on non-performing loans means that investors are at risk of seeing no more than their own capital (capital loss) being fed back to them as (taxable) 'distributions'.

Losing one's capital is one thing, but paying tax on any return of part of that capital in the guise of 'distributions' adds insult to injury.