Over $30-million in Homburg loans pose 'significant risk' to P.E.I. government: auditor general

Teresa Wright
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A Charlottetown taxi driver drops off a fare at the Holman Grand on Grafton Street Wednesday. The auditor general's report that was released says more than $30 million in loans issued to the company that built the Holman Grand Hotel in Charlottetown pose a significant financial risk to the province.

Over $30 million in loans issued to the company that built the Holman Grand hotel in Charlottetown pose a significant financial risk to the province, according to the 2016 Auditor General Report.

A total of $35.5 million remains outstanding as of March 31, 2015 on a loan first issued to Dyne Holdings in 2008. The loan was refinanced and increased twice, topping out at $38.6 million in 2014.

But Auditor General Jane MacAdam says the province has since written down the amount it expects to be repaid on this loan by $10.6 million, based on what is believed to be recoverable.

MacAdam conducted an audit of the developmental lending portfolios within Finance P.E.I. and Island Investment Development Inc. (IIDI).

The value of loans issued under these portfolios has increased substantially over the last 10 years, growing from $70 million in 2005 to $191 million in 2015 - a 172 per cent increase.

Overall, MacAdam found approvals and management of most loans issued by Finance P.E.I. and IIDI for developmental loans were adequate, based on her sample audit of 21 loan files.

But she flagged over $30 million forwarded to Dyne Holdings in loans as a “significant risk to the province” and raised concern about the due diligence on the approvals of these loans.

Dyne Holdings first applied to IIDI for a $30 million loan in October 2008 for two large construction projects and a retrofit. One of those projects was the Holman Grand Hotel.

IIDI immediately raised red flags about the request, including the fact Dyne Holdings already owed $7.9 million in a separate, unrelated government loan.

Concerns were also raised about possible cost overruns for the project and about whether the company had adequate cash flow to cover debt repayments.

The entire ability to repay the loan hinged on a guarantee by Dyne Holdings’ parent company at the time, Homburg Invest. Inc.

Cabinet approved the loan despite the fact these concerns were forwarded to executive council. There was no documentation to show IIDI supported the approval of this loan and the loan application was not forwarded to the board of directors of IIDI until after cabinet had already approved the loan.

Then in May 2009, cabinet authorized a $2.84 million increase to this loan package to help finance increased costs of the original construction plan.

MacAdam notes this increase was approved without any work done to assess whether Homburg Invest was in a financial position to guarantee this loan and no detailed budgets were presented to support the estimated project costs.

Homburg Invest later went through a restructuring and then filed for creditor protection in 2011, leading to Dyne Holdings defaulting on the loan for the hotel.

Eventually a refinancing package was developed, but once again, MacAdam notes IIDI highlighted concerns, including the fact it would mean additional money made available to the borrower and “significant concessions” on terms of the loan, including delayed payments and a lower than recommended interest rate.

Again in spite of these concerns, cabinet approved $38.6 million in restructured loans in July 2014.

MacAdam says the loans to Dyne Holdings for these projects were problematic from the very beginning.

She also found neither Finance P.E.I. nor IIDI measures and reports on the economic benefits of any loans it issues to Island companies.

“There’s a lot of importance attached to economic development in these loans and it’s used as a rationale for approving a lot of these loans,” she told reporters Wednesday.

“It’s important there’s a framework that’s established to measure and report on the benefits realized.”

MacAdam also found directors of both Crown corporations and Treasury Board do not receive enough information to ensure oversight on developmental loans. As well, she found no mechanism to identify and deal with problem loans.

twright@theguardian.pe.ca

Twitter.com/GuardianTeresa

Organizations: Dyne Holdings, Holman Grand hotel, Finance P.E.I. and Island Investment Development Homburg Invest Treasury Board

Geographic location: Charlottetown

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Recent comments

  • Lloyd
    March 17, 2016 - 15:24

    This report must be wrong. Ghiz and Sheridan said all was good. Then Roach said everything is great. People stop worring Wade has it under control

  • EL Douglas
    March 17, 2016 - 14:02

    Well if Islanders truly were concerned about this, they would have voted the Liberals out. Instead, far too many Islanders vote for the party they think will "give them money" ... and then they complain! Sad but true!!!

  • more trouble brewing besides this.
    March 17, 2016 - 11:54

    You did not have to be a financial genius to know when these loans were granted that Homburg et al were in financial problems, and that the history of the former and now the current regime to downplay the severity of the risk's involved.Mr Roach mislead us on this file,now E -gaming is surfacing so how can we trust this minister or this administration to continue to govern in secret and throw roadblocks up at any questions of accountability .......this is just the surface there is more behind the scenes here.......we a need a change ..but who???

  • SlyFox
    March 17, 2016 - 11:23

    More written of loans to millionaires ,while the taxpayers pays for it.Shame on politicians for doing this to the taxpayers but more shame on the taxpayers for letting the politicians do this to them.

  • you voted for them again!
    March 17, 2016 - 09:38

    Well lets do a list and add PNP. Islanders-you voted for same corrupt politicians- duhhhhhhh

  • What Do You Expect
    March 17, 2016 - 09:25

    What do you expect when you elect regular people without any business experience & let them make the deals with smart people who know what they are doing . We shouldn't complain , it's what we asked for over & over again . We just don't like someone telling the truth of how stupid we really are . But hey , we are not alone , look how Trump is exposing the same stupidity in the US .

  • Indignant
    March 17, 2016 - 09:00

    Sunny ways, Mr. Premier, cannot cover the 'handi-work' of former Premier Ghiz and his cabinet, some of which you have inherited and made ministers. Your currant operation becomes tainted by these revelations of cabinet abuse of power. You need to come clean, because until you do, your are as tainted as Ghiz. You may ride high in the pools, but out here in the real world, you are looked upon as a smiling face with nothing behind it, and in cahoots with what has been going on before you. .

  • Indigo
    March 17, 2016 - 08:55

    Where to begin, - this Humbug mess is an abomination. We need a thorough investigation, as to why the cabinet acted the way they did. Did they break rules and laws when approving these loans? Behavior like this begs the question, were there kick backs involved? Minister Roach and Deputy Minister Mike Mayne (handily moved to Health PEI) were responsible for this department at the time. A Royal Commission needs to talk to them and the rest of the people involved, including Ghiz. Islanders have a right to know what transpired, and the names of the companies. Not only with the Humbug loan, there is also the Rodd loans, as well as all the other loans and writes off. The Premier's optimism will have very little fertile ground until he cleans up and lets an honest account of the these shady deals come to light.

  • homburg can use a bank
    March 17, 2016 - 08:38

    So why couldn't Richard Homburg go to a bank for $35 million? He's a billionaire, surely he has a good credit rating. Why did the provincial government not direct him around the corner to either TD, Scotia, CIBC, RBC, BMO, National, or even the local Credit Union? U.S. states and European countries don't give out loans to private businesses. Why do Canadian provinces?

  • Homburg Trump
    March 17, 2016 - 06:55

    Oh look at that, ANOTHER BAD LOAN by our Government.

  • Jim
    March 17, 2016 - 05:30

    Cost the province a lot of money to change the name of The Confederation Theater! (Wes The Cat Theater) Would be just as suitable at least he was a local thief

  • Accounting Expert
    March 17, 2016 - 01:51

    Roach is part of the Ghiz Gang - wolves in sheep' garb. Hold them all accountable!

  • laurent Beaulieu
    March 16, 2016 - 21:23

    It would appear that more supervision is required. Overall economic development was the main driver for the approval of those loans. PEI cannot ignore economic development so all the government needs to do is to take the recommendation of the Auditor and implement them. Nothing much else really.

  • Follower
    March 16, 2016 - 19:50

    This is the loan Al Roach was telling us was so good. This guy is full of it, constantly telling mistruths and getting caught. Time for this guy to get the boot Mr Premier, reminder, he is from the last Government and was in with Ghiz and Sheridan. A Supreme Court Judge , Nancy KEY,critizied Minister Currier to day in the way he handled a family matter, the family was awarded $61000 in damages. Mr Premier better come down out of the clouds and deal with this bunch

  • Checker
    March 16, 2016 - 19:25

    What in the name of all that is Holy is wrong with our elected officials? The former liberal has mismanaged billions of dollars in taxpayers money. The PNP , the business loans and the write off of half a million dollars or more for , in many cases the same recipients ,is nothing but flagrant abuse of power and abuse of the public purse. Due diligence in these cases was determined by party affiliation and party loyalty. Thank God we have an AG with some back bone. The new government was elected because voters had hoped we would see greater accountability but partisan politics is still the name of the game . Friends of the party still prosper while the average citizen struggles to survive. Let's now have a look at who received the money and why. It seem most loans were granted just to make some people more comfortable. Do we have any politicians in this province who truly are concerned about the future of the province and the welfare of citizens? If so , now is the time to stand up and be counted.