Friday, November 22, 2013

League group collapse likely to cost investors $320 million

The collapse of Victoria-based League Assets, unfolding in grim fashion in B.C. Supreme Court, isn’t getting nearly enough media attention.
By the time the dust settles, this will be one of the worst investment disasters in Canadian history. 
Investors will likely get back about ten cents on the dollar as the complex web of companies is wound up. 
Some 3,200 investors gave League $363 million. League claimed to offer small investors a way into the commercial real estate market. The company promised security and great returns.
Those investors now face ruin. There will likely be less than $40 million for them to share at the end of the process.
League filed for protection under the Companies’ Creditors Arrangement Act last month. Essentially, that allows a company that can’t pay its bills time to try and find a solution.
But it’s clear there is no solution. League’s assets, including the commercial real estate holdings and development projects like Colwood Corners, are worth far less than the company claimed and heavily leveraged.
CEO Adam Gant filed an affadvit last month saying the real estate had a net value of $211 million. PWC, the monitor overseeing the CCPA process, commissioned an appraisal that found the real current value is $82 million.
A lawyer for the main secured creditors summed up the situation in a letter to the court this week pointing out restructuring is not an option.
“In fact,  it appears that there is no “business” to restructure  in any event:  League Assets depended for its short-lived success on continued growth and injections of new debt, new investment, and new acquisitions that would  generate fees for the management or “head office” entities,” he writes. “When the money stopped  coming  in, the whole edifice appears to have quickly collapsed under its own weight.”
The consequences are disastrous. Rachelle Berube, a blogger who was being sued by League for comments on her blog that described the business as a Ponzi scheme, has tracked League for some time.
She shared case studies from the company’s sales material, which include investors who talk about mortgaging their homes to invest in League and counting on the investments for their retirements. 
PWC noted in a monitor’s report that this week that investors and creditors are looking at the “significant amounts” invested in League and the low value of the assets and wondering “Where the money went.” 
That’s likely to become a larger question as investors confront the loss of their savings.

Thursday, November 21, 2013

Bono 10,000: Is giving poor Hondurans money creating real change?

President Porfirio Lobo hands out the Bonos... and helps his party's election campaign
Instead of all those complicated, multi-year Honduran development projects, why not just give poor people money?
The Bono 10,000 program takes that approach. Families - supposedly the poorest - get 10,000 lempiras a year, about $500. 
That’s big money. Many people work full-time for $2,000 a year or less. When it’s Bono time, trucks full of campesinos head into Copan Ruinas and other centres, several families, moms, dads and kids, standing in the back of each pickup. 
This year, smiling politicians from the governing party have been on hand to give out the money, and remind recipients who to vote for in Sunday’s elections.
The Bono program is a good primer in development issues.
Start with the whole short-term, long-term challenge.
International funders like projects that promise long-term change. Helping families grow new cash crops, or working with communities so they can hold government accountable. 
Frontline workers with Honduran agencies know the people in the communities and see their immediate problems. They will sometimes settle for short-term fixes - money for a dozen bags of better corn seeds and some fertilizer.
The Bono 10,000 program tries to promote long-term change. Parents have to promise to send their children to school and adopt some preventive health-care practices. Healthier children are expected do better in school. 
And there is some program money to expand access to education past Grade 6. (Access to education past Grade 6 is only available in one-third of rural communities. Education quality is dismal.)
The Bono program has only been in place since 2010. But the Inter-American Development Bank, one of the big funders, has done an evaluation that seemed positive. Participating families spent more. That’s unsurprising, but it did help the local economies. Children of participating families were somewhat more likely to go to school. Also good.
But there are problems.
Like politics, corruption and inefficiency. 
In a country where 74 per cent of the people live in poverty and 47 in extreme poverty, identifying the target group for the Bonos is difficult. 
But there are complaints of favoritism and politicization, especially in this election year. Smiling politicians are on hand to give out the Bonos to big crowds, sometimes with tragic results.
The Bonos, for example, are supposed to go to 200,000 poor families this year. But the government has decreed that the families of people in the army, police and fire departments should get the payment. That could be up to 30,000 families.
It’s a political gesture and a way to take money that’s supposed to be supporting social development and use it to cover government expenses. (The army, police and firefighters are poor; police are paid about $150 per month.)
In another political gesture, one of the three serious contenders for the presidency has pledged to extend the program to 800,000 families.
Which raises the whole question of sustainability, another big development issue.
The IDB is the main funder of the program, and almost all the money is in the form of loans, not grants. 
Every year the Bono 10,000 program runs, Honduras goes deeper in debt. The program, at current levels, is adding $100 million a year that, theoretically, will have to be repaid. (Theoretically because the government is effectively broke and its capacity to repay debts highly doubtful.)
The debt is fine if the program is going to bring healthier, better educated people and future economic gains. But that’s not likely without other big changes - less corruption and crime, half-decent roads, better schools. 
Then there’s the related dependence issue, which features in any development discussion. Is the Bono program helping families build bettrer futures? Or is it encouraging them to count on someone else to come along and give them some money?
There are no simple answers. It’s easy to warn against the risk of dependence when you’re in a developed country talking about aid theory. It’s harder when you’re looking at a population where 31 per cent of all kids under five are malnourished. Long-term solutions alone are going to come too late for them.
The Bono 10,000 program looks mostly like a useful stopgap measure, especially if its administration and equity are improved.
But Honduras needs a lot more profound structural changes - better schools, less corruption, a functioning justice system, adequate infrastructure if it’s not to be perpetually dependent on such short-term aid.

Wednesday, November 20, 2013

VLTs on ferries open door to new wave of gambling expansion

The B.C. government’s idea of putting VLTs on the ferries so people would lose money - on top of the soaring fares - looked at first like a distraction.
The government announced ferry service cuts at the same time. A few headlines about gambling might be preferable to an analysis of the damage done to coastal communities by the service cuts.
But there might be much more going on here.
There are 12,224 slots machines or VLTs in the province. (They are really the same thing.) They take an average $93,000 each from losing gamblers, or about $1.1 billion a year.
Put 80 on each of the five big ferries - the Spirits and Coastals - and at that rate the gambling machines would pull in $37 million a year, to be shared between BCLC, BC Ferries and any middlemen.
Of course, VLTs on ferries will take in a lot less. Casinos and ‘community gaming centres’ are open up to 24 hours a day. A ferry likely allows about 10 hours of gambling time. 
The government’s betting shops attract hardcore gamblers and some addicts, people who lose a lot. And they serve alcohol, which encourages people to make bad decisions and lose more.
Still, ferry VLTs could be a tidy revenue stream.
And the decision would set an important precedent in expanding VLT locations. If ferries are OK, what about BC Place? Resorts? Bars?
Remember, the Liberals ran in 2001 with a campaign promise to halt the expansion of gambling because it would hurt families, damage local economies and create a province of losers, in Gordon Campbell’s words.
There were 2,400 slots in the province then. The government immediately set out to double the number, and then doubled it again to today’s 12,000-plus. The government’s share of gambling losses was about $565 million. Now it’s about $1.1 billion.
The government initially twisted itself in knots trying to deny gambling was being expanded, including a claim new slots would only be introduced in existing or already planned casinos.
But that wasn’t producing enough money from losers. So new casinos were opened and the government pushed ‘community gaming centres’ - bingo halls converted into mini-casinos. There are 19 of them now, with 2,500 VLTs.
There doesn’t seem to be room for expansion.
Maybe this isn’t just about ferries.
The government has claimed keeping VLTs in casinos and gaming centres ensured some controls on the negative effects - addiction, money-laundering, loan-sharking and social damage. 
But it’s apparently willing to abandon that principle to move VLTs onto ferries.
Which, given its record of broken promises on gambling, should leave citizens wondering where the money-sucking and addictive VLTs will show up next.