Collapsed Provident Capital debenture holders shocked as 85% of loans were six months or more in arrears

Collapsed Provident Capital debenture holders shocked as 85% of loans were six months or more in arrears
Larry SchlesingerDecember 8, 2020

Upset Provident Capital debenture holders have expressed shock at the sudden collapse of the mortgage fund manager as it emerges that 85% of loans their investments funded were six months or more in arrears.

The collapse of fund management and mortgage lender Provident Capital seemingly has the hallmarks of other recent collapses including Elderslie Finance Corporation, Westpoint, Storm Financial,  and Estate Mortgage/Pyramid Building Society.

All attracted small investors with promises of high returns. The Provident investors were lending to developers with high risk, albeit offering first mortgages that totalled $97 million over the projects.

A Federal Court order remains in force that prevents the media naming any of the specific failed property projects that Provident lent against.

But as word gets out about the receivership of Provident Capital, shocked debenture holders have been contacting Property Observer concerned about their investments.

“I had absolutely no idea that the company was struggling, and I feel betrayed by the lack of information given,” said one debenture holder.

Another investor said her investment would be considered “small” by Provident’s terms, but was a “huge” one for her, “as I have very little money”.

Provident says that as of December 31, 2011 there were already 12 loans in the portfolio worth more than $2.5 million (aggregating to $69 million) and eight borrowers who owe more than $4 million each (aggregating to $62.million).

The April information booklet also reveals that:

•             Legal proceedings had commenced against eight loans in the fund with an aggregate amount owed of $6.5 million accounting for 6.7% of the loan book.

•             As of December 31, 2011, the company’s equity capital ratio was 2.73%, compared with ASIC’s benchmark ratio of 20%.

•             The arrears rate across the entire $176 million loan portfolio was 59.4% by value.

•             Provident was heavily exposed to just two markets. Out of a total of 55 loans in the fixed interest term portfolio, 30 were for properties in NSW worth $51.2 million with 15 in Queensland totalling $38.9 million.

The information booklet reveals that Provident stopped accepting new debenture holders after March 31 but would continue to accept reinvestments (rollovers) including interest from existing investors.

Of the $96 million invested by debenture holders, $63.5 million worth of investments mature between March and December 2012, $24.6 million between 2013 and 2017 and $7.6 million beyond 2017.

The receivers have expressed a hope of enabling a "meaningful" return for the 3500 investors.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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