Creditors of Caledonian will recover most of their money, according to the Cayman bank’s liquidators.
The second report of the official liquidators to creditors of the bank, released Sept. 4, estimates that depositors will receive between 89.5 cents and 94 cents on the dollar, provided the U.S. Securities and Exchange Commission’s claim against the bank is resolved and no new unaccounted claims are made.
Caledonian Bank was put into liquidation in February after the SEC charged Caledonian Bank and its brokerage arm Caledonian Securities with securities law violations, and a U.S. court froze all of the bank’s U.S. assets, rendering it insolvent.
Liquidators announced on Aug. 21 that an agreement with the SEC to settle the lawsuit had been reached, but the settlement in principle still must be approved by courts in Cayman and the U.S., as well as by the SEC.
The report to creditors did not provide any details on the terms of the agreement, but the Ernst & Young liquidators noted that they believe “the settlement will be viewed favorably by the creditors.”
The latest estimates of how much of the depositor funds will be recovered are based on three different scenarios for the realization of illiquid assets.
Attempts to sell the largest illiquid asset, the bank’s book of 64 loans totaling US$179 million, did not result in “an offer acceptable to the liquidators,” the report said.
As of August, $8 million worth of loans had been repaid, bringing the value of the loan book to 54 loans and a total of $171 million.
The report estimates that 79 percent to 86 percent of the bank’s loan book can be recovered over a two-year “work out” period. The loss on the loan book would accordingly range from US$23 million to US$34 million.
Other faster alternatives, such as a sale of the loan portfolio or an accelerated recovery program, would result in a lower return and are not favored by the liquidators or the creditors committee.
The recovery forecasts are complicated by the loan terms, which vary greatly, according to the liquidators. Some of the loans are secured by property in the U.S., the Bahamas, Canada and the Cayman Islands, others by business assets or share pledges, while a minority of loans are unsecured. As a result, an individual collection strategy has to be applied to each loan.
In August, liquidators had declared a first interim dividend of 75 percent for creditors and 100 percent for depositors with claims of less than $20,000.
Of a total 1,204 depositors, 674 will receive a preferential dividend totaling $3.69 million, and 530 depositors will receive a first interim dividend totaling $344.19 million.
Payments of the dividends, however, have been stalled because the liquidators determined that the know-your-customer information held by the bank on file was insufficient to make the disbursements. This meant that claimants had to submit new KYC information to receive the dividends.
About 67 percent of the depositors who have responded have already received $208 million in dividend payments. For others, the available records are still incomplete, and 367 depositors did not respond to the request for KYC documentation at all. “There could be a number of reasons for this, including that there are many small-balance depositors who, for example, may feel that it is not worth their time to respond,” Keiran Hutchison, one of the joint official liquidators, told The Cayman Islands Journal in August.
The remaining depositors who have already resubmitted acceptable KYC information should receive a dividend payment in the next two weeks, the report said.
The liquidators’ report did not update the costs of the liquidation itself, but liquidators have made provisions for costs and contingencies, which range from $17.37 million to $23.16 million, or between 15 percent and 20 percent of the net unsecured claims of creditors, depending on the recovery scenario.
A second creditor meeting will be held on Sept. 30. It has yet to be determined whether the meeting will be held in Cayman or solely via webcast to save costs.