Written back in 2012. Investors got a shock this week when New Solutions Financial, one of the stellar exempt market investments in Canada sent a vague letter to all their investors informing them that their interest payments and maturity redemptions has been put on hold.
Two Exempt Market reps look over this information and they believe the information is correct. If there are noticeable errors in this editorial, please point them out so they can be corrected immediately.
New Solutions is known among many circles as one of the safest investments available to Canadians.
- They have an experienced team of professionals running the operation.
- They are known to be extremely careful in their operations.
- They have upper level personnel from the other market related and exempt market companies invest money with them.
- They have insurance protection that is supposed to be some of the best in the world.
- They’ve shared success stories of how they’ve collected funds from borrowers that have tried to default.
- They have an arsenal of weapons to protect their investors.
- They have a stellar reputation amongst the alternative investing community.
- And now the big one…THEY HAVE NEVER DEFAULTED ON PAYING BACK INVESTOR INTERESTFOR OVER 13 YEARS!
To start, one simple question is being asked to them and to their partners at Proforma Capital Group who’s #1 rule apparently is to Protect Capital thus quoting Warren Buffet
“Rule No. 1 – never lose money. Rule No. 2 – never forget Rule No. 1.”.
What exactly are the investors that have contacted us not understanding regarding the safety of this investment?
Take a look at the picture below. It is crude but should be an effective diagram of how this investment is supposed to work.
- New Solutions only lends to companies involved with A+ credit or higher purchase orders.
- These are short term loans which means there should be a high level of liquidity.
- For ever dollar lent out there is over $1.74 in collateral. (In fact that number is much higher the last time we were updated)
- They have insurance from Export Development Canada up to 20% for goods when other countries make them.
- They have creditor insurance protection for each transaction that goes bad, thus protecting the investors
- In Proforma Capital’s case, there is another insurance package from Atradius Creditor Insurance that also protects the investment should anything go wrong.
- This investment has been so safe for so long that there has never been a need to use the insurance protection policies.
With all that being said, a letter now appears to every investor stating that the current loan portfolio of New Solutions Financial Corporation is experiencing a very low level of liquidity and turnover. In addition, there are concerns that there may be additional impairment on the portfolio that could impact the ultimate recovery relative to amounts advanced plus interest.
Here is a list of questions investors are asking.
1. Are you saying that many of the companies borrowing money for A+ rated or higher purchase orders are defaulting because there is a liquidity issue in the world markets?
2. Have some of these defaulting companies borrowed more than the insurance can cover?
3. Why would redemptions and maturity of debentures coming due be suspended when that money should logically be returned to investor since it is no longer required for lending?
4. What are the chances liquidity and confidence will be restored by this new investment committee.
5. Does the creditor insurance cover the bridge loans like the one made to purchase Death Row Records that is in dispute? If not, then how can investors feel secure about New Solutions making bridge loans instead of factoring loans? If that is indeed the case, shouldn’t investors have been properly informed that their capital is at risk through bridge loans if there is no insurance to cover them?
6. What exactly does it mean when you say that there may be an additional impairment on the portfolio that could impact the recovery relative to amount advanced plus accrued interest? Are you saying that the creditor insurance will not protect certain funds?
7. In Proforma’s case, why would investors in Proforma have the option to pick up a secondary insurance protection for 1% of returns if it wasn’t going to cover bridge loans?
8. Is there anything else investors should know that would be helpful?
I have always had respect for Robert Thomspon-So. I have had the pleasure of talking to members of his family too. Robert has always talked highly of Ron Ovenden the CEO of New Solutions. With that being said, the letter sent to all the investors scared the hell out of them and a more accurate response from New Solutions would be appreciated by all.
Better answers will be appreciated even if nobody wants to hear them.