Provident Capital receivers terminate two mortgage funds with poor initial returns for investors

The receivers of failed non-bank lender Provident Capital have terminated two high-interest mortgage funds after failing to find suitable new managers.

The two funds are the Provident Capital Monthly Income Fund and the Provident Capital High Yield Fund.

Investors in these two funds will receive initial distributions of between 30 cents and 50 cents for every dollar invested as the receivers seek to sell the properties financed with high-interest loans.

PPB Advisory receivers Marcus Ayres, Anthony Sims and Philip Carter had sought tenders to manage the two funds but in both cases the process did not result in a “suitable change of responsible entity proposal being identified”.

Investors in the high yield fund were due to be paid an interim distribution of 50 cents per unit by December 13 while investors in the monthly income fund were due to be paid a distribution of 30 cents for each $1 unit held.

As of November 30, the high-yield fund had cash of $409,859 which will be utilised to pay the first wind-up distribution of approximately $358,000 to unitholders while the monthly income fund had cash of $9,328,724, which, together with upcoming loan discharges of $1,032,646, will be utilised to pay the first wind-up distribution of approximately $9,460,000 to unitholders.

The monthly income fund has a total of 57 loans worth a total of $22.3 million with 10 loans in a arrears worth $4.4 million.

Provident Capital acted as a lender of last resort on risky development, charging very high interest rates and fees.

The majority of loans in the monthly income fund had annual interest rates of between 10% and 12.5% while a high proportion of borrowers - 15 loans worth $6.6 million - had interest rates in excess of 12.5%.

Of the 57 loans worth a total of $22.3 million, 10 loans are in a arrears worth $4.4 million.

The high-yield fund has three loans – two for residential purposes and for an industrial property – totalling $300,000 all with double-digit interest rates.

The receivers have warned Provident Capital debenture holders to expect a maximum of 35¢ back for every dollar they invested in the failed non-bank lender and mortgage fund manager.

Small investors, many of them pensioners and mum-and-dad investors have $96 million invested collectively in the fixed-interest debenture fund.