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Going to take your advice with my units. thank you.
one of the things going over here is running the statue of limitation by those of used monies not belonging to them.
if you show that the trusties would not sue their executives, you extend the statue of limitation in certain cases.
This is actually a very important judgement. once management is changed, the management entities (who are Delaware corporations) will be
very volunerable to a lawsuit from the new management.
You are mixing multiple things here:
1. Book value in 2015 could have included fees paid to brokers to lure in investors. they could have
included 100% of accrued interest for all loans (assuming that 100% of loans were money good).
2. Bass was accusing the fund of being a ponzi scheme. no such thing as ponzi like - either there is
actual economic activity to generate actual income or not. if you said 20% of portfolio of loans was
a scheme - that would be different. he painted with a wide brush all the loans. he went into lengths
to misinform investors about the loans and their collateral as well.
3. The FBI did run cover for the Bass short and he employed an ex fbi worker in the same office of the
fbi that was handling the case. they both sat in the office and sent vanishing messages to the traders
of the fund. are the fbi office people lying - yes. if they admit they ran an op for a friend that works for
Bass they would be fired.
4. Are the UDF managers crooks - yes they are. the 2008 episode of taking loans from an old fund
changing the rate to 1.75% per year once the market crashed was a theft. that should have been it
to send them packing. that was breaking of any duty (even in an lp in Delaware with no duties that
would be way too far).
5. UDF IV partnerships should be hidden value as the collateral is probably at historic costs until
land is sold in pieces.
6. money was lent at 13% plus various bonuses, but there was the Centaurion interest rate
"adjustment" to 7% from 13% on some loans - what is some loans - who knows. how much was the
write off - who knows. if you have cross collateral agreement, how do you get to this kind of
agreement? who knows. things defy logic here at times.
7. big question - does the fact that audited financials are published mean that no more inflated g&a
in order to desguise outsized legal fees? who knows.
look, all jokes aside, when Centaurion needs to move ownership of parcells to a builder they have to
release the lien and for that to happen, they need UDF to release and thats the checking mechanism.
If udf released liens without payment, forensic investigator can find it out very quickly. bragging aside,
there is limited ability for frauds in this kind of business.
Moayedi is anything but incompetent. I believe there was a document in a lawsuit which stated
how he was basically bragging that the revenues of the projects are his money. that line of thinking
should explain some of the liquidity picture. not everything, but some.
I assume that most of the loans will be repaid. (they need $60M out of $120M in 23). I also assume
that the commitments are to complete projects already liened to them. regarding Centaurion wiggle
room - cross collateral is a powerfull thing. as far as sales - we are talking here end of 2022 and
the sales and prices may not be as good as in 2020 - 2021, but its still a pretty good situation vs a
few years ago. that is my impression from what I read in other places.
I think that they have well over $100M of loans due to be repaid in 2023 & 2024 and together with
$50M of cash they are in a good position to be good on their commitments while they are basically
financing the completion of their liened projects. the big issue here is that there were no specifics
regarding the $23M of G&A. how do you skip over that without deep analysis? that is the bulk of
your expenses. another issue is that the management fees are continuing while the management
reneged on its obligation to provide audited financials and annual meeting in which the manager
can be let go. how does anyone get a contract in which he/she gets paid while they are breaking
the contract and not letting the investors opt out of the contract?
The G&A can be assumed as higher than normal at 2015 and that is $7.5M. if we take that for
2015 - 2021 (7 years) with a 3% per year growth, you should see:
$7.5M X 1.03 ^ 3.5 X 7 = $59.2M. instead (based on the sept. 2022 unaudited) we have $110.27M.
In 2022 we have $23M instead of $7.5M. thats another $15.5M. that all total $65M (the number
that was mentioned as legal fees in the Maryland lawsuit?).
I believe there are more issues, but these ones are the most visible ones to me.
I just looked and saw I forgot to thank you for pointing me to those all important fillings. this entire
story is weird. the first fund with the 1.5% a year loans to the officers should have sent these guys
out of the corporate offices packing.
could you please post the link to those two items.
https://www.sec.gov/Archives/edgar/data/1440292/000114420414022790/v371046_10k.htm
page 18 has a chart of the udf organisation. looks like the operating entity is an lp with 99.99% of the
gp ownership belonging to the corporation. 0.01% belongs to UMTH Land development.
The big question is how long will the courts let this situation continue. it seems absurd as the officers
broke every possible duty and the board of trustees was either unaware or accompliced.
certainly at the point of no audited financials reports they should have asked for a general meeting
and they did not. what about the insurance company for the o & d? is it not exactly what those
policies are for?
REIT can be either a limited partnership or a corporation. this one is an lp.
https://www.investopedia.com/terms/r/reit.asp
The title REIT talks about the type of assets etc., not the legal type of entity it is.
I thought that IV is a limited partnership. limited partnership is not considered a corporation and I
think thats where a lot of the problems lay. instead of breaking the law, the question is if they broke
the partnership agreement. at least thats how it is in Delaware as far as I remember.
I think a deeper dive into MD partnership laws is required here. we need to look at the partnership
agreement as well. usually in a case where audited financials are not provided - thats a violation
of the partnership agreement. in such a case, there should be some kind of precedent to guide the
court. many times if there is no local precedent, they could borrow precedent from a place like
Delaware (or NY) where the partnership subject is more developed.
here is a really dumb question: what kind of derivative lawsuit can force the board of directors and
the executives to basically put the management of the fund on the market for other fund managers
to go after or for unrelated bodies to make offers for specific loans in the portfolio or specific assets.
Can just any MD lawyer file such a lawsuit. at this point, the case of the unitholders being abused
and their interests not represented should be beyond any dispute. the question is the remedy.
Nexpoint and the rest are fighting over management rights, but there is little they show as far as
regard to shareholders in their public funds. I hate to think of what they can do as partnership
managers to their unitholders/partners.
meant to say it was NOT an assertion of mine to say the managers were straight shooters
here...
It was an assertion of mine that the managers of UDF were straight shooters. my only
assertion regarding their business plan is that they had a legitimate one. they deceived
their investors and pushed them into something very different than advertized, but the
fact remained that the funds themselves were built in a logical order of getting the land
through their development life cycle. these guys went down for the wrong crimes.
anyway, thats my opinion.
one thing to keep in mind is that I am talking in relations to IV fund. rest of the funds are
private and I just own units in IV.
The overhead is mostly the expenses that are required in order to move the land forward
through permits etc. the theory of land development is that the value of the land increases
as the land gets closer to building / development.
As land gets closer to building and development happens, the amount of money spent
increases. later MUD spending gets returned, but first you need to put down the money
into the project.
The main reason why Buffington collateral was sold for $40M and not more, was because
a lot of the spending was to yet to done while revenue phase was still not close. the idea
of fund V was to finance the final stages of development all the way to building and sales
of the collateral which started as mere low value farm land at funds I & II.
The problem that UDF always had is that regular people investing their hard earned money
would not go and take such risks with their money. the UDF solution was to promote
their funds using professional promoters paid huge fees WITHOUT disclosing the huge
risks involved to the unsuspecting investors.
The sad part of the story is that the UDF thesis was correct and the price boom happened,
but having to create liquidity caused probably $70M+ of realized losses (in order to pay
back the debt incurred in effort to increase asset / loans base) and I do not know exactly
the legal fees amounts that the managers used IV to pay for.
This was never a ponzi scheme, but the managers were completely irresponsible, rackless
and never told the investors the true nature of their business. its a true business, just not
even close to what investors were told.
Mr Bass did A LOT of illegal stuff here and threw a lot of lies in order to promote his
short thesis. if he stuck to the true issues here, he could have probably also benefitted
and not drive up the borrowing costs of himself. my guess is that HE could have taken
over the fund management and made even more money than he did. instead the FBI
might punish him for making them look like fools that work for short sellers who employ
ex FBI people.
Nexpoint have a decent chance in taking over management as well (because it was
Highland and not them who were part of the original Bass plan to short and buy cheaply
the assets).
I think the $40M liquidation was in 2017. as far as the other funds, I doubt their collateral
had no MUD or other residual value. I do not know.
what was sold for $40M was the land that was the collateral for the IV loan to Buffington.
what happened to the company - I do not know or care.
I think the entry you link to says that UDF took over the collateral. also, this is the small
Buffington loan. if my memory is correct, the larger Buffington loan had IV as the first
lien lender. it was a $68M loan and the collateral was liquidated for $40M. write off was
$28M at IV.
They got like $11M in cash instead of future $25M (which we do not when they were to be
due to PLX).
There is no way this job is for 25+ hours per week unless its for the purpose of due
diligance for a potential deal.
either that or increased collateral value (which also happened naturally in 2021 -
2022 as well) will increase loan values on the books. which might fit into what
I believe is throwing the kitchen sink by the new management (despite being
trustees while the events were happening) and being able to take asset values
up over time as the loans get paid and notes do not go down any more as much
as cash generated by pay backs. seen this process so many times over the
last 20 years with loan closed end funds.
Some of the loans being second lien make the ability to lend development loans
even more important. the quicker you develop and sell, the quicker loan value
and eventual monetization happens. this is not replacing old loans with new ones.
This fund have suffered due to management being crooked (and external bodies
being as crooked or more) and now with increased pay back they have the means
to supply development loans and rescue their second lien loans (which I think
was the original idea for this business plan of making non predictable cash flow
into an annuity like dividend machine - which defies natural laws...).
I found that same statement quite interesting too. I believe the way to
understand it as the way you did. to me that means they were extra conservative
in their valuations. the only other way I could understand it is that many of the
loans are second lien (or worse - unsecured) and the one thing that bugs me is
that there is a cross collateral agreement - meaning collateral does not get released
after being paid off unless the rest of the loans are healthy. healthy would include
properly colleteralized - or so I would assume.
here are some things that would partly explain the reduction of loans:
1. increased amount of paybacks during 2021 is evident.
2. increased cash balances due to the paybacks.
3. we are still talking COVID and it might make people more conservative in their
estimates as they know an outside auditor would eventually come and go
through their projections & valuations. keep in mind that the only risk to the
personal here is to be too high.
4. knowing that the former people at the top are soon to be former, would you think
the remaining trustees want to start off with high balances to defend or start low
and be able to go up from there?
I think Centaurion's master loan agreement ties the notes to eachother - meaning
there is no defaulting on one note and paying others. that should help collateral
wise.
I think the agreement is between UDF and Centaurion (meaning all the UDF funds)
and the wording is that some of the loans are going into 7% per year from 1/1/17.
it states that its effective date is as of 12/31/20, but it does not say until when the
rate is reduced. the agreement (according to the "communications") says that
Centaurion will bring additional $175M of collateral that UDF agrees is qualified
and valued at that price. until such collateral is added, personal guarantee of
Centaurion's owner will exist (I think $10M). Nexpoint in its lawsuit claims that
the personal guarantee was released, so I assume the collateral was added.
I would love to know what is the amount of principal subjected to the 7% rate
and how much remains at the 13%. I did a small calculation to figure out the
interest rate on the loans since 2017 (based on interest income vs average
notes balance of the current year and previous one):
2017 = $31M / (($376.7M + $368M) / 2) = 8.30%
2018 = $29.6M / (($376.9M + $376.7M) / 2) = 7.85%
2019 = $32.4M / (($350M + $376.9M) / 2) = 8.90%
2020 = $24.2M / (($330.5M + $350M ) / 2) = 7.11%
2021 = $28.1M / (($259.3M + $330.5M) / 2) = 9.53%
This is more than 7% and less than 13%. that tells me that the notes subjected
to the 7% are going away. the big problem I see here is the $60M excess in
g&a (probably due to legal fees). its probably $70M on top of high g&a to
begin with (the fund is hardly active since 2016 and except for directors, the
staff should be the managers' staff).
To be fair, to me the 2021 look like someone took out any possible issue and
wrote it off (as far as book), but you can not write off cash expenses of $70M
where a lot of it has to do with defending people not employed by the fund,
without fiduciary duties to the fund and according to the results, based their
legal fight on misrepresented facts. the trustees who oversaw that do have a
fiduciary duty here and are in a problem. do they have o&d insurance?
last thing - how do you audit 2022 without having audited beginning balances?
that is a problem. does the state accept such reports?
if you are willing to sell at $1.10 - let me know.
If centaurion owes UDF IV close to entire $350M loan portfolio and there is a
cross collateral agreement - that is good news. cross collateral agreement
means you can not selectively pay back some loans and default on others.
2021 - 2022 should have generated a ton of repayments to IV, so the balance
sheet by now should have much more cash in it.
I am guessing that accrued interest, for the most part, was discounted from the
balances on 12/31/20.
Anyway, what do I know.
I think your analysis looks at facts presented and not really challanged (lack of
proper opportunity?).
1. early funds is relevant to less than 10% of the loans (IV was the largest fund by
far), so using 10% to make claims about 100% is a problem. my understanding is
that 13% was the going rate with IV.
2. Buffington was trying to get the amount he owed reduced while not giving away
the colleteral (is it because there was no value in the equity?).
3. Centaurion - one would have to claim that the ENTIRE collateral pool is not
worth the debt - due to the loans linked together (you can not pay one without
paying others). looking at the values of debt per lot - those do not look like they
are upside down.
Why would the borrowers want to cast a picture in which the loans are upside down?
maybe because this way they think they can get some debt reduction.
I think I read the same article as you did. please remember those
professionals were part of the clinical trial, so keep in mind they
are believers - which is ok to be. they have an opinion and theirs
is based on their knowledge and biases. I am also a believer, but I
choose to remind myself that belief does not guarantee others see
the facts as I do. the fda is a mysterious creature to me. it is
probably more corrupt than we think it is, but we still depend on
its decision here.
many seekingalpha article writers have interest in the outcome of their
articles. many are paid by hedge funds as well. I will give the later
option a very high probability. disclosures on a website like
seekingalpha hold very little in weight (unless the sec goes after you
and connects it with other things as a pattern).
Good luck to the company and to us, its shareholders.
Keep in mind that the boxes were numbered and that UDF is asking for
them back plus there was a court appointed person to make sure the
government does not look into what they are not allowed into. that
means that if these people were in prison and then new evidence were
to emerge that the government knew about, there would be a huge
problem. I am guessing somebody is trying to stay in front of
something. do the evidence show innocence? I do not know.
my guess: the private company bought those units from the public fund
using some kind of a reference price (CTT bid - ask maybe?) and if
I am write - this is a sign that Nexpoint thinks this situation will
get resolved during this year. people involved in the management of
HFRO, in my gutt feeling, want to keep the profits to themselves.
Personalities in Nexpoint (especially a certain person) are not
beneath doing that.
Regarding the Centurion balances on bond prospectuses being higher
than owed to UDFI:
1. are there other debts against those projects other than UDFI debt?
2. maybe the numbers provided by UDFI are net of reserves.
3. are there expenses that Centurion charge back internally to the
project entities which create higher balances?
Three things that could explain the different numbers.
so what you are saying is that borrower Buffington could not pay back
on time (due to the cash flow profile of those projects/lands
securing those loans), so Hollis offered him to rollover the loans
into fund V and Buffington refused. he thought he could not afford
the rate that was involved. was Buffington expecting some reduction
in loan principle? is that why Hollis cursed him out?
Buffingon sent an excel spreadsheet that claimed the collateral to
his loans is worth only $40M and UDF (the lender) "corrected" it
with their estimates to show $170M. that is what you are saying, right?
Next, you are saying Buffington asked UDF to not let IV buy his loans
from III because... it was making the accounting difficult. right?
So, Buffington had loans with UDF for a large amount and he decided
to send them a spreadsheet claiming the collateral is worth $40M and
was hoping for a loan restructuring. what UDF did was to instead extend
the loans by having V buy them from III. that meant that no
restructuring would be done. if I am correct, some of the loans were
not first lien secured, so in theory Buffington could have gotten
them cancelled.
So, the claim used to be that IV was lending money to III to make
dividends. now, its V buying loans from III.
I would leave it all to the lawyers to define affiliates (based on
exact ownership of funds' management companies, not names of the
funds) and to the accountants to figure out the real collateral
value of those loans.
I said in the past that there are things which UDF did that are
problematic at the least (the 2.5% rate loans to managers in the
oldest fund instead of market rate is the most glaring thing), but
those seem to be ignored. instead, the focus is on things that can
be disputed.
This seems to be an attempt by the government to answer the question of
"if this is a crime, where and who are the victims?".
So:
1. lenders got paid in full, so they are not victims.
2. builders - some had to look for refinancing of loans due to UDF IV
liquidity - question remains about Bass's fault in that (on its
looks very substantial, but trial was not conducted yet).
3. investors - the bottom line point has always been - were the loans
the funds made legitimate and was the cash flow projected to
happen likely to happen? I never heard a hard no from the
government.
4. brokers who misrepresented the loans (actually the collateral
profile and cash flow schedule in reality) should be punished
severly. they charge 6% for their services. they get paid by the
issuer, but that cost gets rolled into the investment. I hope
this makes some kind of fiduciary duty responsibility on these
middle men.
5. I wish someone could compile a schedule of projects, expectations
of cash flow timing and present it as a type of liquidation
analysis of IV. that would make it clear once and for all if the
loans are money good and if investors were taken for a larger
ride than cash flow timing. I suspect the government and Bass
would NOT want to know those answers, but I would want to lnow
officially. I think I know them unofficially already.
You can not submit information like that without verification. there are
rules as to what you can claim and based on what. at least that is
what I know about courts.
I am sorry, but you do have an unaudited balance sheet. since the
balance sheet was submitted to a court of law, verification of cash
and balances had to have been done. same thing for ownership of
assets of joint ventures.
If you look at the repayments over 5 years (over 80% of loans at 2015
repaid), one would have to assume that most of the then loans were
realized. some of it was natural and some due to Bass (having to
realize > $170M in loans to pay back loans). looking at where the
market is, one would have to conclude that remaining reserves would
need to be reversed and that whatever was in joint ventures is
probably more valuable now. also, keep in mind that book value
usually gives very little value to options on extra payments due to
certain conditions being met.
The rate of realizations of land and the valuations in which those
happen have to have improved the fund condition by a lot.