The Bank of The Bahamas bail-out vehicle must now employ “lots of muscle” to recover its remaining “toxic” loan collateral valued at $142m, its chairman revealed yesterday.

James Gomez, Bahamas Resolve’s chairman, told Tribune Business it has largely recovered the “low hanging fruit” among delinquent Bank of The Bahamas commercial loans that it received via two transfers in 2014 and 2018.

Disclosing that some $40m has been recovered to-date, on assets appraised at a collective $63m, he said Bahamas Resolve is now focusing on the “more toxic” credit in its portfolio where success will be “key” to minimising the potential financial “burden” for both the Government and Bahamian taxpayers.

Mr Gomez, acknowledging that the bail-out vehicle’s work will take some years to finish, told this newspaper that the work-out of five loans worth a collective $100m will be key to remaining recoveries. While he declined to identify the borrowers involved, one of the five is almost certainly the Summerwinds Plaza on Tonique Williams Highway that was pledged as collateral by former PLP cabinet minister, Leslie Miller, and upon which more than $30m is alleged to be owed.

That loan is currently the subject of a court battle, but Mr Gomez voiced optimism that Bahamas Resolve’s recovery efforts are proving effective even though the outstanding debt still owed is worth $204m - a sum he said “contemplates write-offs”. Should the full $142m value assigned to remaining loan security be realised, this will only be equivalent to 69.6 percent of that debt, thus leaving a potential $62m shortfall.

Some 391 commercial and residential properties are among the assets left on Bahamas Resolve’s books, the chairman confirmed, with almost one-third of these accounted for by a 131-lot residential subdivision. Mr Gomez, though, said progress had been made in bringing the company’s financials up-to-date with audited statements covering all years through 2020 now completed.

“Things are moving along as anticipated,” Mr Gomez told Tribune Business. “The real issue is that during the first couple of years it’s good to deal with the low-hanging fruit. Now we are getting into the real toxic stuff and that, of course, provides the challenge. These are very significant assets, and you have to work out the best deal possible for Bahamas Resolve and the Government.

“The whole tranche of loans that were sent over to Resolve were toxic, but some were more toxic than others. We have five loans that total about $100m that are a significant part of the facility that was transferred. The key thing is how best we can recover on those. It’s going to be critical to us meeting our obligations to Bank of The Bahamas....

“If we are able to negotiate some sort of settlement arrangement for those five major loans, I think we’ll be close to completion. There’s lots of muscle needed to take us to the finish line. The recovery itself, for the Government and to lessen the burden on the taxpayer, is going to be connected to how we are able to recover on those large loans.”

Realising those loan assets is likely to be complex, and also involve fights before the Supreme Court. However, the Bahamas Resolve chair said that in some cases it was able to leverage the fact that borrowers have also pledged their residential homes as security for the commercial credit advanced by Bank of The Bahamas.

“We are now in the process of trying to follow up on those larger sources, and working out agreements with homeowners,” Mr Gomez said, estimating that there were about 20-25 such loans where homes were also serving as loan security. He added that “ten so far have come forward” to work out payment plans given that they are at risk of losing their family homes.

Mr Gomez said several residential properties were subject to the Homeowners Protection Act, which provides extra security for delinquent mortgage borrowers in danger of losing their homes by inserting the courts into the process. This, in turn, makes it harder for lenders to secure assets pledged as collateral for credit, and he added: “That is a process we are trying to navigate now.

“People are approaching Resolve, understanding the seriousness of it. It goes to the foundation of one’s security. Some of them have come forward to make arrangements. In the meantime, based on the Government’s strategy, the Government is not interested in kicking people out of their homes and putting them on the streets but, at the same time, it wants action and that Resolve continues to service the bond interest payments to Bank of The Bahamas.”

To fill the hole created by the toxic loans transfer to Bahamas Resolve, two promissory notes were injected into the bank’s balance sheet, worth $100m and $167m, respectively, in 2014 and 2018. The first has since been converted into cash, but the latter - and larger - bond’s maturity was this summer extended by three years to August 31, 2025, with a 4 percent fixed interest rate coupon mandating quarterly interest payments.

Bank of The Bahamas’ balance sheet ascribed a $170.171m value to the last promissory note, meaning that the annual interest bill attached will be around $6.8m. This sum is supposed to be paid by Bahamas Resolve from selling assets upon which the toxic loans are secured, but if it fails to generate a sufficient sum then the Government - via the Bahamian taxpayer - has to step in and make the payment.

Mr Gomez said the promissory note’s extension will result in Bahamas Resolve having to pay “a bit more” in annual interest to Bank of The Bahamas, confirming that the now-higher 4 percent interest rate will push the annual interest bill “closer to $7m”.

He added that the previous “low hanging fruit” recovery of $40m, on assets appraised at $63m for a 63.5 percent realisation rate, had largely enabled Bahamas Resolve to meet those payments and thus protect taxpayers from additional exposure. However, the Bahamas Resolve chief conceded that the more difficult loan recoveries ahead - combined with the higher interest payments - will make this “a bit of a challenge” moving forward.

“We have been able to cover it. Government hasn’t stepped in since a couple of years ago,” Mr Gomez told Tribune Business of the interest paid to Bank of The Bahamas. “We’ve been trying to treat it as a commercial enterprise as best we can where we try to recover the assets and meet our expenses. Other than that the taxpayers have to bear the burden. To the extent we can minimise the burden on taxpayers, the Board will do its best to make sure that happens.”

He added that changes made to Bahamas Resolve’s Articles of Association under his predecessor as chairman, James Smith, had given the bail-out vehicle more flexibility in how it deals with distressed commercial assets by enabling it to appoint receivers for income-generating properties so that it earns rental revenues and other earnings that can satisfy the outstanding debt. This provides an alternative to simply seizing the real estate and looking for a buyer.

“We have been able to put a lot of pressure on people who otherwise would have just turned their backs and not even looked at Bahamas Resolve,” Mr Gomez said. “We’re pretty happy with the response. People know we are there. We have three officers in the main office constantly reaching out to the debtors. They are responding.

“Some of the debtors have been very good. They consistently come in monthly or make wire transfers to Bahamas Resolve accounts. We have some people who have settled their debts.” He added that Bahamas Resolve was also working with the Department of Inland Revenue, Bahamas Power & Light (BPL) and the Water & Sewerage Corporation to ensure all taxes and outstanding bills were paid when distressed loan collateral was sold.

As for its financial statements, Mr Gomez said audited accounts have been completed for the years from 2014 up to and including 2020. “Even though we’re lagging behind slightly, we’re in a better position than when I came in as chairman in 2017,” he revealed. “At that time there were no audited financial statements.

“We have 2021 that is outstanding, so hopefully by mid-year 2023 we will be current with 2021 and 2022. We have already submitted to central government the statements for 2014 to 2018. I have 2019 and 2020 on my desk now. I just need to complete my review of what the auditors have submitted and we will be sending those in.”