Diversified Mortgage Trust (DMT) update
By VoV | Diversified Mortgage Trust | Monday 21st June 2010In our article “Q&A Friday 28 May 2010″ a reader asked the question: “The ‘A’ class has been repaid in full. I haven’t been able to find any information on what is happening with ‘B’ class debentures. Their website is well out of date and not helpful. Does anyone have any recent information?”
James Usmar of Saturn Portfolio Management reported that there would be a newsletter from the manager (Praesidium Asset Management) and simultaneous commentary from the trustee (Perpetual Trust) on the week of 8th June.
As it turns out, the manager was late with its report, which was eventually released on 16 June. Thank you to James who kindly forwarded me a copy of both reports.
In short, the manager is hoping to achieve an eventual principal repayment in the region of 88c in the dollar on the Class B Notes. However, this is dependent on legal proceedings against Lloyds Insurance to enforce DMT’s right to claim under its insurance policy. The 88c estimate assumes a nil recovery of costs from Lloyds. Any recovery of costs would therefore boost the principal repayment to investors.
Perpetual Trust has approved an extension of the repayment date to 31 December 2010 and acknowledges that additional time might be required beyond 2010 because of uncertainty over how long these legal proceedings will take.
In other words, don’t hold your breath because this is going to take some time.
You can download a copy of the reports here:
DMT May 2010 Manager’s report
(PDF 66 KB – right click and select “Save Target As…” to download)
DMT May 2010 Trustee’s report
(PDF 55 KB – right click and select “Save Target As…” to download)
Tuesday 22nd June 2010 at 9:34 am
If there is a guaranteed return of 88%, why can’t we have part of that now? Say 50%? This has been going on a long time and actually I’d be happy with 88% now. Compared with other Finance companies, that would be a success.
Tuesday 22nd June 2010 at 10:07 am
Ah, if only the world worked that way. Unfortunately it is not a GUARANTEED return; it is as stated above an estimate of the *eventual* return and is dependent on the Lloyds case. That means there’s no money in the coffers right now. If DMT is successful and Lloyds are forced to honour their insurance policy, then there will be money to pay out.
Tuesday 22nd June 2010 at 5:30 pm
OK. But I don’t understand the sentence above – “The 88c estimate assumes a nil recovery of costs from Lloyds”. To me this means that if we recover nothing (nil) from Lloyds, we get 88c. If we recover something from Lloyds we get between 88 and 100c.
Tuesday 22nd June 2010 at 7:19 pm
Yes, it can be confusing. What it means is this…
The legal action is to force Lloyds to honour its insurance policy and pay the losses DMT has suffered on its defaulted loans. Once Lloyds pays that, DMT expects to return around 88c in the dollar to investors.
If DMT is also awarded ‘costs’, i.e. the Court tells Lloyds it must also pay DMT’s legal costs, then the payout is expected to be greater than 88c.
Wednesday 23rd June 2010 at 10:53 am
Thanks for that VoV. I haven’t read the new reports yet, but should we infer that there is some challenge over the Lloyds payout? It isn’t normal for “legal action” to be required to pursue insurance claims. Is there a suggestion that the claim may be invalidated by some action taken or not taken by DMT?. There were other financial organisations which had their insurance claims flatly rejected because of some misdemeanour!
Wednesday 23rd June 2010 at 11:28 am
It seems to be standard practice for insurance companies to either refuse to pay out or find some loophole to avoid having to pay out on insurance policies. Clients then have to resort to legal action to force the insurance company to honour its obligations. I’m picking that’s the case here.
I guess for the insurance companies it’s a numbers game. The clients that give up and the insurance companies avoid having to pay out on more than covers the legal costs on the cases they lose in court.
If that’s the case, it’s a very inhuman, cynical, cold & calculating approach to business.
I haven’t heard about any actions DMT may or may not have taken that might jeopardise their insurance policy so I have no reason to suspect that. Time will tell though.