Shareholders Letter: Been looking back at the Shareholders Letter of 27th August 2007, to understand some of the statements made with reference to the 'funding source'/ conduit lender and institutional investors.
First Point from Letter:
Extract:
"Through our business model, the Company does not operate as a funding source. However, we originate and prepare real property commercial promissory notes for pre-closing and deliver them to a funding source. Management believes it can deliver more than $740 million in projects for funding before year-end."
The 'Funding Source' referred to is the Conduit Lender with whom HCPC plan to merge in due course imo
Second Point from Letter:
Extract:
"Second, the BCLOC represents a paradigm shift from traditional commercial lending philosophy that requires time and effort to gain the trust, acclamation and comfort of investors involved with a funding source."
Again imo, the 'Funding Source' referred to is the Conduit Lender with whom HCPC plan to merge in due course. The Conduit Lender funds the loans until they can sell the notes to the institutional investor. As we are talking about hundreds of millions of dollars/ risk, I am not surprised that the Funding Source has required extensive DD before committing such funds.
Third Point from Letter:
Extract:
"Q: Is the institutional investor, stated in the press release on February 27,
2007, still providing the $300 million in funding for the purchase of
the BCLOC Notes?
A: A potential funding source has advised us that the special purpose entity (SPE) that issues the BCLOC Securities has made changes in the structure to reflect the current credit market conditions and expects to offer direct pay “AAA” rated notes versus collateralized debt obligations or CDOs. Further, they have advised that the restructuring is expected to allow the funding source to offer BCLOC Securities at a substantial amount over the $300 million previously mentioned in the press release."
Again, the 'Funding Source' is the Conduit Lender with whom HCPC plan to merge in due course imo. They sell the BCLOC Promissory notes/ securities (issued by the Special Purpose Entity (SPE) set up by HCPC) to the Instututional Investor. In this particular case, the institutional investor mentioned who was originally going to purchase $300 million worth of notes is now expected to purchase significantly more. The 'Funding Source' or Conduit Lender could either utilise the NASD member firm mentioned in HCPC's earlier PR of 27th June 2007, or it could also be a NASD Member firm. We will find out in time.
We know from the PR of 18th October 2007, that, "Heritage will develop an action plan to merge with its conduit lender that will provide the capital infrastructure for launching new business and funding remaining BCLOCs in the pipeline."
The remaining BCLOC loans in the pipeline would probably amount to several hundred million dollars as the total pool of loans to be funded is $740 million. In my opinion, this conduit lender must either have pretty deep pockets or access to substantial amounts of short term financing that allows them to fund these loans until they are able to sell the notes to institutional investors. It's exciting that there are plans being developed at present for them to reverse merge into HCPC in due course.
Final point. The PR of October 18th stated that, 'October 19, 20 and 21, our staff will participate in the Wealth Expo in New York in an effort to appeal to a broader span of institutional investors."
As we know HCPC have a Funding Source/ Conduit Lender with whom they plan to merge in future. I think the attendance at the Expo is to raise awareness of the company and what they offer, to attract more institutional investor money for the purchase of the BCLOC promissory notes from the Funding Source/ Conduit Lender in the future imo. Obviously as more loans are generated, the number of institutional investors required to purchase the BCLOC notes will increase dramatically imo.
In summary, HCPC originates the loans, securities/ notes are issued by the SPE, the conduit lender funds these loans until they can sells the notes to the institutional investor. Eventually HCPC and the conduit lender will merge. Exciting times lay ahead imo.
GLTA
