The joint administrators of Blackmore Bonds have revealed that bondholders will not be able to get much of their investments back.
The firm raised money from retail clients to invest in property, starting at a minimum lump sum of £5,000 ($6,376, €5,611).
The funds were used for development projects managed by wholly-owned special project vehicles (SPVs).
Blackmore went into administration on 22 April 2020, with Duff & Phelps appointed to manage the process.
According to the joint administrators’ statement of proposals, seen by International Adviser, the firm issued six series of mini-bonds between October 2016 and November 2018 – raising over £46m.
But only had £906 in its bank account when it became insolvent.
According to the issuance terms, Blackmore was obliged to pay quarterly coupons to bondholders, and it was forced into administration after it failed to pay out twice.
Pending investment outcomes
But Duff & Phelps revealed that, out of the £46m raised, it believes investors will experience a “substantial shortfall”, because “the total expected to be available to creditors from these property developments will not exceed £5m”.
This is because when it took over the administration process, 11 of the development projects were still ongoing and any money raised by the administrators will depend on the sale of the properties.
“At the time of writing this report, of the 11 properties, receivers had been appointed to four properties, one property was subject to enforcement by mortgagee in possession, and of the remainder, three properties were either under offer or sales had been agreed,” the joint administrators added.
Bondholders cannot, however, place a claim with the Financial Services Compensation Scheme (FSCS), because mini-bonds are not a regulated investment product, and Blackmore was not regulated by the Financial Conduct Authority (FCA).
This is the same issue faced by the more than 11,600 victims who were mis-sold a similar type of bond by now-defunct London Capital & Finance.
Open strategy
Duff & Phelps believes that, currently, the most likely exit route from administration will be via creditors voluntary liquidation.
This requires the directors of the firm in administration to voluntarily choose to bring the business to an end, and wind up the company.
“However, the company’s exit route will be left open so that an alternative strategy can be adopted, should this prove more appropriate at the time,” the joint administrators added.
Despite this, Blackmore did put in place capital guarantee schemes for all six series of mini-bonds.
The first one was taken out with Ion Insurance Group and it repays losses of up to £75,000 of “the capital amount per investor”.
For series two to six, the schemes were issued by Northern Surety Company, and they cover the total value of losses on the capital invested, the joint administrators said.
A formal demand for payment was made by the trustee Oak Fund Services on 19 April 2020.
The process is being monitored by Duff & Phelps, but it added that the “quantum of any capital repayment is uncertain and an update will be provided in due course”.
