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Aug 22, 2006

Big loans, small collateral at D.F.C.

Story PictureDay seven of the Commission of Inquiry into the running of the Development Finance Corporation opened with a familiar witness. News Five’s Janelle Chanona reports from her twice weekly beat at the Belize Institute of Management.

Janelle Chanona, Reporting
Located next to the Belize Institute of Management is the headquarters of one of the D.F.C.?s most controversial loans. The corporation has lent and guaranteed a combined total of more than twenty-eight million dollars to Universal Health Services. And as Franklin Magloire tells it, there is no security to back up all that cash.

Franklin Magloire, Chief/Project Manager
?There is a recorded with the registry; second mortgage on all those properties. That?s where the whole question of the two hundred and five thousand dollars in legal fees, recording fees, etc. will be. In the same package that I gave you there is a legal certification form that is signed by legal department to indicate that legal instruments have been perfected. It is a one pager.?

Merlene Bailey Martinez, Member, Commission of Inquiry
?But the second mortgage??

Franklin Magloire
?It?s a second mortgage, Belize Bank holds the first.?

Merlene Bailey Martinez
?So Belize Bank also holds first. So D.F.C. guaranteed the seventeen million that Belize Bank loan to U.H.S., Universal Health Services Limited, and also in terms of the ability to collect on those twelve properties. It is a second mortgage so Belize Bank also holds the first claim on those properties??

Franklin Magloire
?That is correct.?

Merlene Bailey Martinez
?Where on earth does that leave the D.F.C., in terms of its ability to move on those properties??

Franklin Magloire
?Local parlance … up the creek.?

Merlene Bailey Martinez
?This is a valuation of the entire project site??

Franklin Magloire
?Yes that is correct.?

Merlene Bailey Martinez
?Underground utility etc. nine hundred and seventy-five thousand, five acres with standard fill to a depth of five feet. Five acres at five hundred thousand dollars per acre, it is valued at two point five million dollars. That was the valuation that I was interested in because the project document lists that valuation at nine million and at nine point five million dollars and it was on the basis of that a loan was approved–on the basis of that valuation. Who should we ask about what D.F.C. should have done with this valuation in terms of funds??

Franklin Magloire
?Such a valuation?whenever a valuation is done by an external party that valuation ought to be reviewed by the D.F.C.?s chief appraiser to see where it is acceptable to D.F.C. There is no indication on the file that this valuation was ever passed to the chief appraiser or to myself for reviewing. In fact, only going through it yesterday I recognized and I read through it and I said to myself, I have never seen this valuation. There is only a note saying please file. So it was never really reviewed by D.F.C.?s staff. I do note also that in that valuation there is values on inventory that the D.F.C. would not normally consider. If I own a business and I tell my manager that I want him to do x-activity does he have a choice? I don?t think he has a choice. He can record concerns, and he can record disagreements, but at the end of the day if I am the boss I will tell him, you implement.?

Merlene Bailey Martinez
?You are saying that the board cannot independently decide on the merits of projects or the merits of any activities, because they are given directives from the government??

Franklin Magloire
?I did not say that they cannot. I said they did not.?

The second witness to testify today was veteran D.F.C. employee Jane Longsworth. During her twenty-one years at the corporation, Longsworth has risen through the ranks to the current post of Manager of Finance and Internal Services. One of her responsibilities during the investigation period was that of Securitization Officer.

Jane Longsworth, Finance/Internal Services Manager
?It was to get cash. It was to make cash available. So securitization allows you to sell your receivables for cash, and it transfers the right to receivables to the purchaser. And what they do with that, in the case of R.M.B. and B.M.C., they then issued bonds. They issued bonds with that right to the receivables, so they got cash and passed cash to us. We could use that cash. I don?t know that there was a plan for the cash. I don?t know of that.?

David Price, Chairman, Commission of Inquiry
?If you?re funding costs were higher than what you were investing it in, then it won?t make much sense??

Jane Longsworth
?Well sometimes if you need cash. Expensive money is better than no money at all.?

David Price
?Alright it brings me back to my original question, were there projects earmarked for this cash??

Jane Longsworth
?Not as far as I know. In the case of the B.M.C. project we were already involved in some investments in the housing development etc. and we needed money. By the time we were getting into the North American transaction I can remember us really juggling?like Creole would say, ?from Peter to pay Paul.? We needed cash to balance things out.?

David Price
?That is by time you reach B.M.C.??

Jane Longsworth
?The B.M.C.?

David Price
?But if there is no urgent earmarked project then you just need cash for cash sake. In which case it doesn?t make sense to acquire that cash at a higher cost than you would be investing it in. So I would presume that that would be one of the first things you would study. If you want to embark on this programme will we be better of or worse of at the end? Was that ever done??

Jane Longsworth
?I don?t know if that kind of analysis was done before we entered into transactions.?

Another of those transactions was something called the ?Asset Purchase Facility?.

Jane Longsworth
?That was not like the normal securitization. I think it was more a loan, an asset backed loan. But how they came about putting the package together I can?t say. I don?t know.?

David Price
?So you don?t have anything else to offer to us on that??

Jane Longsworth
?Well what I can say about it?if I can remember well the repayment term on it was short term. I don?t remember exactly but it was short term. The repayment was something like eight million dollars a quarter. That was like the most difficult facility to service debt, when I entered into finance. It was really pushing us against the wall to meet the commitment.?

David Price
?This is what helped to break your back? The D.F.C.?s back.?

Jane Longsworth
?I would almost venture to say yes that is what really strapped us for cash. It was a facility for eighty-one point eight million dollars, and we received it in several tranches. It didn?t come in as one. This is a nice list of how that eighty-one point eight million dollars was used. In fact, if I can recall here, monies from this transaction was used to debt service this transaction.?

Merlene Bailey Martinez
?In terms of payment to the Godfrey Group of Companies, and I think it needs to be said, Alliance Bank ten point zero, Provident Bank two point zero, another Alliance Bank, two million, another Provident Bank a hundred and sixty-nine thousand, so that would put us to fourteen or fifteen million out of this asset sale that bore such burdensome repayment conditions. It also needs to be said and I hope the legislators take this into account payments to Government of Belize five million, three point five million, eight point five, another five million, which is thirteen point five, another twelve million, which is twenty-five point five and another seven point eight million dollars, which is about thirty-three million.?

Longsworth?s testimony also included details of the role of former C.E.O. Troy Gabb in certain irregularities in the securitization programme.

Jane Longsworth
?The grand total line there tells you how it was distributed at the end.?

Merlene Bailey Martinez
?Where sorry??

Jane Longsworth
?Grand total. It says of the first payment, D.F.C. gets twenty-seven point seven-nine million, S.S.B. gets six point one-seven-four and St. James gets fifteen point four-o-one. But we paid Social Security the sum of the two. They made the further payment.?

Merlene Bailey Martinez
?I need to ask, who requested you to do that recalculation and what was basis on which that was done??

Jane Longsworth
?Mr. Gabb, the C.E.O. at the time. I was working with Mr. Gabb on this transaction.?

Merlene Bailey Martinez
?And he instructed you verbally ? in writing??

Jane Longsworth
?It was verbal.?

Merlene Bailey Martinez
?So to recalculate it because St. James would not be bearing their part of the cost ? when you received that instruction from Mr. Gabb how was it delivered? Did he call you to his office to say ok recalculate these, were you in a meeting or were you in the presences of someone else when he gave you those instructions??

Jane Longsworth
?I can?t recall, but I know that this document was discussed in the presence of others on several occasions. So he did not just said this to me, he has said this to the rest of the group.?

Merlene Bailey Martinez
?Which group was that?”

Jane Longsworth
?The group involved with securitization at D.F.C. t the time would have been myself, Mr. Magloire and even the accountant as to why these would be so. Then when we made this presentation to the Social Security Board, because we did the calculations and we had to explain to them how we had arrived at what there portions would be, and why we did what we had done. And of course, the Social Security Board did not bear the cost of these decisions, so they didn?t have a problem with this at all. But it was presented to them and they know exactly how we arrived at the values they received.?

David Price
?Now the money that G.O.B. paid to liquidate these tranches does the D.F.C. now owe G.O.B. that sum of money??

Jane Longsworth
?No, we don?t.?

David Price
?Why not??

Jane Longsworth
?Because the Government of Belize–these were booked as deferred income, and maybe you would need our auditors to add some credibility to what I am going to say. But because it is a deferred income on the settlement of that debt we could realize that income, and so we did with the permission of the Government of Belize. We realized the forty-seven point nine million as income on a condition that we would use that income to up level of bad debt provisioning, which we did.?

Longsworth is expected to resume her testimony on Thursday.

Reporting for News Five, I am Janelle Chanona.


Viewers please note: This Internet newscast is a verbatim transcript of our evening television newscast. Where speakers use Kriol, we attempt to faithfully reproduce the quotes using a standard spelling system.

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