Membertou Borrowed $6.8M from Bridging Finance for Novaporte Stake

Membertou Chief Terry Paul, whose band borrowed $6.8 million from Toronto-based private lender Bridging Finance Inc to finance an investment in a proposed Sydney container terminal, says he is not concerned about the arrangement despite Bridging having been placed in receivership on April 30 amid allegations of fraud and misappropriation of funds by its founders and executives.

Bridging Finance, Membertou and SHIP logosMembertou and Bridging Inc were announced as partners in Albert Barbusci’s Novaporte “consortium” in January 2020. Barbusci (as my regular readers must surely know) heads Sydney Harbour Investment Partners (SHIP), which just this month had its exclusive contract to market the Port of Sydney as the site for a container terminal for ultra-large vessels extended by three years.

Chief Paul confirmed for me — through spokesperson Kelsea MacNeil — that Membertou’s investment in Novaporte was $6.8 million which it borrowed from Bridging Finance Inc. He told me, through MacNeil:

Membertou was working with Bridging Finance to finance our investment in NovaPorte. The investment we made in the project remains unaffected by the recent news of Bridging Finance’s receivership. Bridging Finance was a Membertou financing partner, and not one of SHIP. Since the announcement of its receivership, Membertou has been working with the receiver, and our investment remains secure.

The receiver, PricewaterhouseCoopers, in its third and most recent report on Bridging (dated June 9), said it was still in the process of reviewing Bridging’s outstanding loans. As of March 31, Bridging had “approximately 50 borrowers” with outstanding term or revolving loan facilities (five had both term and revolving facilities) and 12 borrowers with accounts receivable factoring arrangements. An unnamed number of the term loans are subject to “payment-in-kind” agreements, which means interest on these loans can be deferred. Most loans are scheduled to mature in 2025.

Bridging is in trouble for a number of reasons, the first being a series of “questionable loans” made between January 2017 and April 2020. But investors are also unhappy about an injection of cash the firm received in September 2020 from a group of investors led by R.C. Morris & Co. As the Globe and Mail reported, Bridging “initially kept investors in the dark” about the “participation note,” which put R.C. Morris first in line for payment should Bridging encounter financial difficulties. (David Sharpe told OSC investigators the injection was needed because COVID had resulted in a flurry of redemptions the company was unable to honor.)

 

High interest

It’s too early to say what will happen with Bridging’s outstanding loans, like that to Membertou. The Ontario Securities Commission (OSC) investigation is ongoing and PwC has been approved to continue acting as receiver until mid-August. It’s very possible the loan will be sold — some of the sunnier comments I’ve read on the Globe and Mail site insist Bridging’s loan portfolio is strong and could easily find a buyer.

Grocery and Pharmasave, Elsipogtog FN, NB

Grocery and Pharmasave, Elsipogtog FN, NB (Source: Bridging Finance)

But it is worth noting that as a private lender, Bridging’s bread and butter was making high-risk loans that banks wouldn’t touch. The pay-off, for investors, was that Bridging would charge high interest rates (according to the PwC report, the average rate charged on a Bridging loan was 12.4%).

Bridging’s specialty was loans to First Nations, and here in Atlantic Canada, in addition to Membertou, Elsipogtog First Nation of New Brunswick received financing from Bridging, in partnership with Sean McCoshen’s Usand Group, to construct a grocery store and pharmacy in 2016. McCoshen — who was apparently born in Antigonish — is the “missing man” in the Bridging Finance scandal according to the Globe and Mail. He’s at the center of the OSC investigation into Bridging Finance, accused, among other things, of having paid David Sharpe $19.5 million after companies under his control received loans from Bridging.

The Elsipogtog deal doesn’t seem to have sparked any controversy, but according to the Globe, some of McCoshen’s dealings with other First Nations were decidedly dubious, including deals he brokered in conjunction with Bridging. In the case of a loan to the Peguis First Nation of Manitoba:

Council retained band member and former senator Murray Sinclair to review the transactions with Bridging earlier this year, before it was placed into receivership. “The amount of interest that [Bridging] was charging Peguis was phenomenal,” he told The Globe in an interview. “The concern I had was that it is conceivable that Peguis was taken advantage of.”

For now, rather than speculate about the implications of the scandal for Membertou and Novaporte, I will patiently await the completion of the OSC investigation to find out what happens next.