Two of three Compass loans total duds

Investors in Bridgecorp-related Compass Capital will have to rely on insurance for any pay out.

Tuesday, 25 May 2010

by Paul McBeth

Investors in the Bridgecorp-related Compass Capital will probably have to rely on any return on their principal from the receiver's insurance claim after the proceeds from two of the company's three loans were soaked up by prior-ranking mortgages.

Receivers Grant Graham and Brendon Gibson of KordaMentha told investors they will pursue the insured section of its loan to Bendemeer Developments after the secured property sale left nothing for Compass Capital's second mortgage. Similarly, they said they will look to progress an insurance claim on the second-ranking mortgage over the Kaimai Palms residential development properties after the first mortgagee appointed receivers to that development.

"There will be claims made on the company's insurer in respect of each of the three loans," Graham and Gibson said in their third report. "Based on our preliminary estimates, as there will be a shortfall to secured bondholders there will be no funds available to unsecured creditors."

Compass was set up in 2006 by failed financier Bridgecorp to buy loans from the rest of the group using funds raised from the bonds, and act as a warehouse for the finance company's better quality assets. It fell over last year, owing some 500 investors about $16.1 million in principal and interest.

The vehicle held a Lloyd's of London insurance policy, covering 100% of the principal of all loans up to $3.5 million each, though only $20 million could be paid out in a year.

A silver lining in the report comes from the sale of some properties owned by Hermes Development at Mangawhai for about $846,000, which will be used for the first part distribution to investors.

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