CCAA ‘feeding frenzy’
If all goes to plan, Cash Store
Financial Services, a payday lender with, at one stage, more than 500 branches across the country, is expected to receive final court approval and emerge from bankruptcy protection next week.
The edmonton-based company, which also operated 29 branches in the u.K., entered creditor protection in April 2014, a decision undertaken “to address near-term liquidity issue,” and deemed “the most prudent and effective way to carry on business and maximize value for the company’s stakeholders.”
At the time Cash Store, whose shares hit $29 in 2009, had $8 million in net liabilities and $140 million in long-term debt.
Cash Store’s CCAA protection was a first for Kurt Soost and murray MCCANN, two Albertans who were thirdparty lenders to Cash Store. Soost ran Trimor Annuity Focus Limited Partnership #5 while MCCANN ran MCCANN Family Holding Corp. and in total they provided $41.5 million in loans.
When a customer approached Cash Store, it acted as a broker and arranged with the third-party lender to provide the loan — earning Cash Store a fee. “The third-party lenders got their money back when the loan was repaid. The third-party loans were to be used solely for making loans to Cash Store customers,” said Soost who had been providing such loans to Cash Store for about nine years.
Given what’s occurred over the past 18 months, the two are less than impressed with the experience.
That assessment is based on the following:
On Friday, Soost claimed his LP funding entity “was never a creditor. We never gave title of our money to Cash Store. Our money was held in trust and used to supply the payday loan client with money (who) would pay it back into the pool,” said Soost, who claims Cash Store “breached our contract and ended up putting us in the situation that we are in.”
Indeed had Soost known Trimor would end up a creditor, his firm would have “pulled our money out under a liquidity clause.”
Perhaps, but Trimor’s agreements were interpreted differently in an Ontario court. “We were very surprised by that decision,” said Soost, adding their third-party loan status “had been represented and vetted by lawyers, accountants and regulators as an off-balance sheet arrangement for many years.” This was based on:
The low percentage return on its loan. Soost has received a net $1.4 million — or 5 cents on the dollar.
Large fees, estimated at almost $25 million, have been extracted by the professionals involved — lawyers, bankers, lenders and advisers — and which the court has approved. As part of that work, creditor claims have been settled, agreements have been reached on class-action lawsuits and assets have been sold. MCCANN refers to the process as the “big machine” and a “feeding frenzy.”
A full understanding of the professional fees paid is impossible to determine. While 20 reports from the monitor have been filed, the information on fees is incomplete. For instance, there are data gaps, with no information for the four months ended Feb. 14, 2015. The almost $25 million is an estimate based on the average fees per month for which information is available times 19 months.
Calls to the monitor seeking a comment weren’t returned. Soost has asked, but not received, a detailed statement of fees paid.