The lawsuit is good new in my opinion. It opens up UDFI to discovery by Bass, so if they had something to hide that could incriminate UDFI I don't think they would have done this.
The fundamental problem with UDFI is that they financed long term, illiquid assets, with short term debt. It seemed like they had a sensible amount of debt- $170 million vs $600 million of assets, but didn't account for the lines of credit getting called.
A lot of their decisions were aggressive- but using a line of credit to finance a long dated, illiquid asset was probably the most aggressive, and it burned them.
I'm sure when they come out of this they will match the duration of any debt with the expected term of the asset.
It's surprising that they can't get financials filed in 2 years. But, I also believe that if there was any wrongdoing to the magnitude that Bass alleges, then the SEC would have already shut them down. The SEC has been involved with them for 3 years now. They have also paid off substantially all of their debt. So, we know there is some value left at UDFI.
The other factor that will eventually bail UDFI out is the value of undeveloped land has gone up a lot. There are almost no deals in residential real estate going into default and wiping out the equity in the deals. It is my view that this factor has given UDFI a life line.
Shahan Prairie is interesting in that Bass highlighted it as one of the worst UDF loans- in the lawsuit, it seems clear that Bass was 100% wrong. It was paid in full with accrued interest.
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