Investors in the suspended £118m Connaught Income Series 1 fund could be facing 50 per cent losses.
Representatives from Connaught Asset Management, fund operator Bluegate, advisory firm Duff and Phelps and lawyers SJ Berwin met with creditors this week, including a number of IFAs, at the National Motorcycle Museum in Solihull.
The possible losses are linked to property assets handled by bridging lender Tiuta which used the Series 1 fund as a funding line.
It also emerged that Capita, the ACD for the Arch cru range, had been the operator of the Series 1 fund before being replaced by Bluegate in September 2009.
Duff and Phelps said it has written to Tiuta, calling on it to honour a guarantee to fund any losses on the Series 1 fund. Tiuta is refusing to comment on whether it recognises the validity of the guarantee.
It was revealed that £105m of the £118m assets from the Series 1 fund had been used to fund Tiuta’s lending book.
An independent review by Duff and Phelps suggests a best case scenario whereby £53.2m might be recovered from the £105m invested. A worst case scenario outlines the prospect of only recovering £46.5m.
The review concluded it would be possible to recover £25.7m in loans that are likely to redeem in full. A further £16.2m in development loans may require more funding to complete development.
Insolvent borrowers accounted for £29.8m of Tiuta’s loan book, with a realisable value of between £5.8m and £11.6m. A further £13m is being pursued through litigation while £8.7m could not be accounted for either in terms of security or ongoing litigation.
Possible losses on the Connaught Income Series 2 fund, which raised around £18m and was also used to fund Tiuta’s lending, are unclear.
BDO is administrator for Tiuta International, the arm of Tiuta responsible for the loan books which entered administration last month with the loan books sold to Connaught for £1.
BDO will assemble a shareholders’ meeting in three to four weeks to determine whether the loan books should be pursued or sold at discount.
The Series 1 fund was suspended in March and interest payments were not made. A decision to wind down the Series 1 and 2 funds was made in June. A Series 3 fund not linked to Tiuta loans, which raised £22m, was wound down in July due to a spike in redemptions.
Tiuta made a pre-tax loss of £37.8m for the 18 months to 30 September 2011 after suffering heavy loanbook losses.
The FSA issued a warning regarding the Series 1 and 2 funds in May 2011 after they were described as “very low risk” and “low risk” in product literature.