Here is a scenario that could support IV book value of $15+:
There’s a lot of info in all the court filings in the Bass Lawsuit. I’ve pieced together the info and made some assumptions to come up with a possible scenario that backs into the $882 million Greenlaw states is the total UDF loan values at the end of 2016. This scenario assumes that Bass was wrong in his thesis and that UDF’s asset values were not misrepresented. Greenlaw goes to great lenths in his affidavit saying this is the case. If we take him at his word which was provided under oath, it’s possible the only material losses were from Buffington in I & III.
Greenlaw stated in his affidavit that total loans decreased from $1.2 billion from Dec 2015 down to $882 million at the end of 2016. Keep in mind this does not represent total assets, just total loan amounts. There’s another couple hundred million in assets that could add value as well.
Factors that impact the decline in loan balances from $1.2 billion to $882 million could be as follows (detailed notes below on these assumptions):
Buffington: $196 (generated $40 million of cash)
Centurian Horton Sale: $60 million (est proceeds- Moyoadi sold 6 deals to Horton)
Centurian other loan repayments: $100 million (Greenlaw said Centurian loans reduced by $167)
Southstar Loan: $13 million (Greenlaw said was fully paid back)
Weekly/True paying back loans: $5-$8 million (Greenlaw said fully paid back)
Model and SF home loans: $37 million (UDF IV's most liquid loans)
Those add up to $411 million of write offs and repayments. If we take $1.2 billion and subtract $411 million we get $789 million. Then assume those loans accrued interest at 13%, the new portfolio value would be $891 million. That is close to what Greenlaw states is the value at the end of 2016.
We know that UDF paid off a little more than $200 million in bank debt during 2016. $170 million of that was IV. The scenario above shows is possible that UDF raised that money with the only losses coming from Buffington.
This scenario would explain why the Wells Notice was sent to only III & IV. The SEC apparently didn't find anything wrong with UDF I, II, UMT, UMTH, and V. I also think the SEC charges were not that serious in light of all the allegations.
There may be loan losses from other loans.
Would welcome any questions or thoughts.
Notes:
We know the Buffington loan balance was $196 million at Sept 2015 as follows:
I $29 million
III $99 million
IV $68 million
The portfolio was substantially sold for $40 million. I & III took most (if not all) of the losses. IV loans to Buffington were secured by both first liens, reimbursements, and finished lots. My assumption is that the $40 million cash went to IV since most of those loans were 1st liens. It’s unclear if IV took losses or if there were a couple Buffington deals that remained in place with IV.
Moyoadi stated that he sold 6 deals to DR Horton. Those deals were: Regatta, Shahan Prairie, Sinclair, Southern Colony, Travis Ranch, and Williamsburg. Four of those deals were in IV. Shahan Prairie and Southern Colony were lent from other funds. The four deals in IV had loan balances of about $55 million. Assuming those deals were sold to Horton without substantial losses, that generated $60+ million.
Greenlaw stated that Centurian’s loan balances had been reduced $167 million total from either the sale or refinancing of loans. We know the sale to Horton represented about $60 million of that, which means Centurian has paid back another $100 million.
Greenlaw stated that the Southstar loan was paid back because the developer refinanced with another lender. That was a $13 million loan.
David Weekly and True Homes paid in full their Austin, Orlando and NC loans.
IV also had $32 million in loans secured by finished lots. There were other loans that were secured by both finished lots and undeveloped land. But this $32 million were loans secured by finished lots alone, which are easier to sell.
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