Rockin' CCWIPP: Where the Hits Just Keep On Coming
At UFCW Canada's troubled pension plan (CCWIPP) last week was chock full of bad news and barking dogs.
Bahama Drama Continues
CCWIPP's drama in the Bahamas continues and it doesn't look like there's a happy ending coming any time soon. The South Ocean Golf and Beach Resort a troubled property into which CCWIPP has pumped over $200 million (CDN) has closed.
According to a story last week in the Nassau Guardian the resort, which has a long history of bankruptcies, laid off all of its 120 workers and shut its doors. It will remain closed for 15 months so that major renovations to transform it into "a luxury golf and beach resort, providing upscale accommodation, memorable cuisine and fine entertainment in an intimate setting where our clients can enjoy the warmth of Bahamian hospitality" can be made.
So - for at least 15 months this woofing dog of an investment won't make a cent but will cost CCWIPP members - few of whom could even afford to visit the place - millions.
Full Metal Cease Trade Order
AFM Hospitality Corporation, the hotel management firm built with large infusions of CCWIPP funds on very generous terms, was slapped with a full cease trade order by the Ontario Securities Commission last week for failing to file statutory financial information for 2003 and for the first quarter of 2004. A limited cease trade order was imposed on company insiders and directors several weeks ago. CCWIPP Investment Committee member Eugene Fraser and CCWIPP Trustee Wayne Hanley are Directors of AFM.
CCWIPP's financial statements for 2001 showed the pension fund had approximately $9 million dollars invested in this company - an amount roughly equal to its total Quoted Market Value on the Toronto Stock Exchange.
Bobbie Rae to the Rescue?
For one brief shining moment last week it appeared that CCWIPP might actually be trying to unload one of its underperforming investments but the devil is always in the details. In 1997 a CCWIPP investment corporation called I.F. Propco Holdings 18 and a group of guys (and businesses) with ties to CCWIPP bought a six-story office building at 135 Queens Plate Drive in northwest Toronto. Toronto Land Registry documents confirm that the happy gang borrowed $3.7 million from the Royal Trust to finance their purchase. The investment does not appear to have ever generated any kind of return for CCWIPP. In fact, it seems to have cost them money. CCWIPP's financial statement for 2001 shows the cost of this investment to be over $6 million.
Earlier this year, with $2.9 million left on the mortgage, Propco 18 and the circle of CCWIPP-associates who owned the building (and many of whom occupy the building as tenants), appear to have found a buyer willing to take over the mortgage - a labour sponsored investment fund (LSIF) called Retrocom. The Chairman of Retrocom is none other than former Ontario Premier and NDP leader, Bob Rae and the fund is sponsored by the International Brotherhood of Electrical Workers and a number of construction associations.
Apart from some nagging questions about why a CCWIPP investment corporation was taking out mortgages rather than lending money with interest and why a $3.7 million mortgage taken out in 1997 by a number of players was costing CCWIPP over $6 million in 2001, a decision to get rid of this barking dog of an investment seems like a smart thing. But then, there's always the fine print.
An agreement dated March 19, 2004 and filed with the Land Registry office sets out the terms of the purchase of the building by Retrocom. Although it is very clear that Retrocom will be assuming the $2.9 million mortgage, CCWIPP and the rest of the vendors agreed that they will continue to be "principal debtors".
We may not be real estate tycoons, but this doesn't sound like getting rid of anything. If you're a principal debtor, you've got the debt. So what gives here? The boys wouldn't be trying to put one over on us would they? Making it look like they're getting rid of one of their cribs when they're just changing the name on the door?
These are only a few of CCWIPP's underwhelming investments. Nothing about them makes a whole lot of sense. Why would a pension fund pour millions into a struggling resort in the Bahamas or a hotel management firm that keeps expanding wildly but doesn't generate a return. Why does it take out a mortgage to help a bunch of guys buy a building? Why does it agree to be liable for the mortgage even after the building is sold?
There's a common thread that winds it's way through many of these investments - Ron Kelly, former Catholic priest and real estate tycoon whose empire was built on the backs, or at least the pension money, of thousands of UFCW members. The Bahamas property was one of a number of Caribbean hotels Kelly purchased in the late 1990's. AFM was a business he is believed to help found and one that swallowed up a number of hotels he purchased in the early 1990's (with CCWIPP funds). The office building at 135 Queen's Plate contains a nest of businesses with connections to Kelly or CCWIPP or both.
Despite the cost to CCWIPP members of the enormous investments in Kelly's enterprises, CCWIPP appears intent on holding on to them, even to hide its continuing interest in them in subsidiary companies and new owners whose debts CCWIPP continues to carry as liabilities.
What the hell is going on with this pension fund? CCWIPP's recently released audited financial statement for 2003 shows payments of almost $1,000,000 to Benchmark Decisions, a company that provides consulting services to CCWIPP and is controlled by CCWIPP's entire Board of Trustees. Maybe they can provide an explanation for CCWIPP slavish allegiance to the former Father Ronnie. Maybe the members should force them to - before things get any worse.
In 2000, AFM reported that they executed an agreement with I.F. Propco Holdings (Ontario) 23 Ltd., to convert 'two-million dollars of long term debt to equity.'
During the year, AFM's principal creditor, I.F. Propco Holdings (Ontario) 23 Ltd. ("Propco 23"), which is also a significant shareholder, expressed its confidence in the Company by converting approximately 20% of its long-term debt holdings to equity in the form of redeemable preferred shares and warrants. In addition, Propco 23 modified the terms and timing of various principal repayment dates of two long-term loans….
My calculations make CCWIPP's long-term holdings at $10 million in 2000. As well, AFM reported at the time that CCWIPP owned approximately 15% of the company. However, I've also seen a deal where CCWIPP's investment in the Royal Connaught Howard Johnson Plaza Hotel in Hamilton Ont. got cleared from the books by bouncing it to a related company controlled by an AFM insider.
I think there may be much, much more sunk into AFM-related deals and properties.
These guys thought that the whole human race was stupid or that no one would never take enough of an interest in their wheeling and dealing to ever try to figure it out. They were so wrong. There's enough on the Internet about their various ventures and transactions to generate interest, never mind what's available in public records.
Speaking of the "debt to equity conversions" that they seem to have a fondness for - at least when it comes to AFM and Father Ronnie's enterprises, I can't imagine of an arrangement that is more favourable to the biz guys and less favourable to the pension plan members. I mean, this - to me - seems so blatantly contrary to the pension trustees fiduciary duty to the members that I practically puke every time I think of it.
To put it in perspective, if you or I could get a "debt to equity" conversion it would look sort of like this:
Let's say that I owe 10K on my Visa or Amex. I can't pay it or maybe I don't want to pay it so I call the customer accounts line and say, "Hey, y'know that 10 large I owe you guys? Well I can't pay you. I've got no money and I can't even afford to make the minimum payments anymore. So here's what I propose we do to solve this problem: You guys forgive the 10K - that's right, just wipe my debt clean - and gimme another 10K to play with. Not a line of credit or more credit, just gimme 10 grand that I can put in my bank account and do what I want with and treat as part of my 'net worth' when I apply for more credit. If I ever strike it rich, I'll pay ya back. Really."
OK, it would be pretty cool if the plastic people bought that shit. But they don't and for good reason. (Can you imagine the pricks at Visa saying, "Oh brilliant idea dude. Why didn't we think of it before. Our shareholders will be totally thrilled that we're pissing away their scrilla like this. We'll send the 10K over in a couple of garbage bags in a limo.") I have no idea why the CCWIPP boys extend this type of generosity to their deadbeat debtors - to the detriment of their shareholders. It's just mind boggling and it has to end.