Ontario Judge Approves Bridging Finance Liquidation, Investors Set to Lose $1.3 Billion

David and Natasha Sharpe at the offices of Bridging Finance in downtown Toronto on April 11, 2019.Fred Lum/The Globe and Mail

An Ontario court has allowed the receiver of Bridging Finance Inc. to reject the two final offers it received during an unsuccessful five-month attempt to sell the private lender.

Instead, the court-appointed receiver, PricewaterhouseCoopers LLP, will oversee Bridging’s remaining loans and wind down the lender’s operations, while simultaneously trying to recover what it can for Bridging’s investors through litigation.

PwC sought this result at a hearing in February, but was temporarily derailed by an anonymous Bridging investor. The anonymous investor’s lawyer, Domenico Magisano, urged Ontario Superior Court Chief Justice Geoffrey Morawetz to give them more time so they could prepare an argument against PwC’s plan.

Bridging Finance receiver faces opposition to liquidation plan from unknown group of investors

Bridging Finance Investors to Lose $1.3 Billion After End of Sale Process Due to Unsatisfactory Bids

But after a hearing on Friday, in which Mr Magisano admitted he could provide no evidence that the sale process harmed Bridging investors, Chief Justice Morawetz cleared PwC to reject the final offers on Tuesday. . Under the approved liquidation, Bridging Finance investors will lose approximately $1.3 billion, or approximately 62% of their assets.

The decision opens a new chapter in the receivership, which was requested in April 2021 by the Ontario Securities Commission after its investigators alleged Bridging failed to disclose a number of conflicts of interest. between its management team and its borrowers.

At the time, Bridging was managing $2.09 billion on behalf of 26,000 investors, many of whom were retail buyers lured by the company’s promise of higher returns than other investments in an era of rates. ultra low interest. The scandal impacts every major independent bank and brokerage in Canada, all of which sold Bridging’s private debt funds.

Bridging specialized in providing short-term loans to high-risk borrowers and charged a high average interest rate of 12% to compensate for uncertainty. This has enabled Bridging to offer investors an annual return of approximately 8%.

Bridging’s annual return has helped its funds explode in popularity. From the beginning of 2018 to the end of 2019, the total net asset value of Bridging’s funds tripled, from $660 million to $1.86 billion.

But PwC alleged Bridging’s portfolio included many troubled loans backed by underperforming assets; that many borrowers were permitted to defer cash interest payments; and that Bridging executives had engaged in personal dealings. “It turns out that Bridging was very good at attracting capital, but very inefficient at managing that capital,” John Finnigan, one of PwC’s lawyers, said during Friday’s hearing.

PwC initially hoped to sell either Bridging’s entire loan portfolio or many of its individual loans to interested buyers, and the receiver launched a formal sale process in August 2021. More than 200 potential bidders approached PwC before the receiver narrows the field to the two most promising bidders.

However, after analysis by financial consultants and after discussions with court-appointed lawyers who represent investors, PwC concluded that it could deliver a better and more immediate return to investors if it simply terminated the Bridging and canceled the sale.

The expected loss of $1.3 billion does not include recoveries from litigation the receiver said it plans to bring against Bridging’s former officers and directors, and against the funds’ former auditor, KPMG LLP.

Bridging Finance, which was run by the husband and wife duo of David Sharpe, the lender’s former chief executive, and Natasha Sharpe, the lender’s former chief investment officer, was a very profitable business for some time.

Over the four years from 2017 to 2020, Bridging received management and incentive fees totaling $148 million, plus an additional $5 million. However, PwC alleged that some of these fees were generated by inflating the net asset value of Bridging’s portfolio by failing to properly account for impaired loans.

Ahead of Friday’s hearing, an anonymous group had tried to rally investor support for an alternative to PwC’s proposed plan. Their campaign included a website, outreach activities by an Ottawa public relations firm and arguments from Mr. Magisano.

But the lawyer admitted in Friday’s hearing that he was representing only one investor – who declined to be identified and whose total investment was around $134,000. Chief Justice Morawetz underscored that figure when rejecting Mr. Magisano’s arguments on Friday.

The investor group declined to respond to The Globe and Mail’s request for comment.

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