Wednesday, December 2, 2009

B.C. Ferries-The Bottom line-A complete Sham

Lets try and wrap this up shall we...One more question to answer but I`m about ready to crack this nut.

So here`s the deal as best I can figure, lets start with the voting share, first off the owner of the voting share has the power,the power to appoint four directors against the province only being able to appoint one, the directors can set policy...Direction of the company..and the directors can set compensation levels, the province, the comptroller general,the shareholders(us) have no say....No say on who is appointed, we have relinquished all oversight to this private group,and.....This group is there to oversee financial matters, their priority is "not the public interest", and to buy this voting share, to attain control its clear that we would have to buy all of the massive debt and obligations this quasi private company has accumulated.

Here is from Nelle Maxey..A ex Powell river persuader (The raging Granny)...Nelle spent 18 years in business,most of which required detailed analysis of government funded contracts, Nelle said she understands the documents better than most people," I`m well-versed in corporatese" she said "and how the Chief Ferry Agreement is framed she thinks the agreement presents insurmountable problems to making BC Ferries a success as a private company....While net earnings were 71 million in (2008) they owed 33 $ million in interest,leaving a 37 $ million in earnings.

BC Ferries are headed for trouble as they may not be able to continue paying interest on the loans to the consortium of banks that have contracted mortgages to finance the company...And...

"Once those two lines intersect (of declining revenue and rising interest payments) your in big trouble"

And that`s exactly what happened this year, for the reported quarter...April,May,June of this year, the Private Ferry company fell short....Their (BC Ferries) earnings were roughly 3.6 $ million dollars shy of covering interest payments and operating expenses, and now they have cut sailings in an attempt to save 450 Thousand dollars...The least of their worries.BC Ferries interest payment on their debt is over 51 $ million dollars this year, up from 33 $million last year,that trend is disturbing.

Nelle Maxey goes onto say....If debt outstrips income,said Maxey,there are only two options for BC Ferries...(the first) is that the province bails them out..."Which makes you wonder why they privatized in the first place" The Second option is the banks call in their loans and effectively own BC Ferries, though the province has the first option to buy back all the assets that have been mortgaged. She went on to say...Whether the province buys them out,buys back the mortgaged assets from the banks,or they are sold to a third party, it will cost the taxpayer..."It will cost a lot of money because they are in so much debt" she said.

And she said "BC Ferry commission is designed to oversee finances,NOT to look out for the public interest"

My friends..It`s like a credit card this interest, BC Ferries seems to be paying only interest payments, no principle,what happens if you only make minimum payments on a credit card....You never pay it off...BC Ferry debt has ballooned to 1.4 $ billion plus.

So here we have it, we can`t FOI BC Ferries, the auditor general can`t investigate,the Ombudsman can`t investigate, the owner of the voting share controls the directors,controls wage levels,policy and direction, BC Ferry debt is ultimately our debt, but the most disturbing part of this THING....This Deal...This Sham...Is

The Debenture...A debenture is used for raising capital, the debenture,from everything I have read is...It`s a very special financial instrument used for raising capital, a Debenture has no value,it is neither collateral or cash....A debenture relies on the "Trustworthiness of the backer" In other words.

The province gave BC Ferries a debenture(A note saying we will back up BC Ferry debt) BC Ferries borrowed money with help from the debenture,which brings me back to the (Debra Marshall letter)..."The Province gave BC Ferries a debenture in april of 2003 and BC Ferries agrees to re-pay in CASH"....(Isn`t that worded funny)....They(BC Ferries) will repay in cash,which BC Ferries did, 14 months later,so the province gives a (my buddy`s good for it debenture,with no value) to BC Ferries....And BC Ferries pay back the province 427 million plus 25 million interest in cash! one year later)

They also gave the province 75 thousand shares worth 75 $ million, but here is where it gets interesting, all the boats,terminals,all BC Ferry assets are mortgaged to the hilt, and ...This debenture was a capital raising financial instrument, and, who got the money raised, BC Ferries paid the province with borrowed money,they only made 17 million in 2004...So how did this debenture help BC Ferries? We owe separately for the new vessels, the debenture didn`t pay for a new terminal or new boat, the money that got raised was given to the province with the debt on BC Ferries books! Where did BC ferries gain anything? Or....And I have some people searching this information out as we speak.

Did the province take 460 $ million dollars out of treasury and put it aside for this debenture and just get paid interest on this money or is it as I suspect that no money was set aside for the debenture,the province created the debenture to raise capital,not capital for BC Ferries but for capital for the province, did Gordon Campbell trade dollars with BC Ferries or did Gordon Campbell just create dollars out of thin air?

And, the debenture was used for a reason,the debenture was used for BC ferries to borrow money,did they borrow double the debenture amount?Nowhere in the books does it look like they borrowed over and above the debenture, the debt for the three new German ferries is separate and held by German banks hmmm.

So we can`t FOI..Can`t control direction,policy,wages,we can`t protect the public interest,we don`t own the voting share, we are on the hook for all BC Ferry debt anyways, why was it privatized? A sham to raise near 1/2 billion dollars to put in his pre 2005 election budget?

If the province created a debenture to raise capital for the provincial budget under the guise of a cash out,cash in loan,but in fact there was only cash in towards the province and nothing but debt put on our BC Ferry compamy....Well...Surely that can`t be legal,ethical, but with BC Rail sold...BC Hydro shenanigans,and another 1.6 billion sell out to help save Campbell`s newest record deficit. In other words....The provinces gives me a debenture,(a trustworthiness note) I take this debenture and borrow 500 $million dollars, I mortgage everything that I own, I take the money I borrowed with the help of the debenture,and I return the 500$ million to the province, the province ends up with 500 $ million and I wind up with the 500$ million dollar debt, where do I(BC Ferries gain anything)?

Was the privatization of BC Ferries (with all the bad consequences)an elaborate scheme to merely raise money for the province and Campbell`s budget woes in fiscal 2004/2005?

When I get the answer to my last question you will be the first to know!

The Straight Goods

Cheers-Eyes Wide Open


Anonymous said...

BC Ferries...a murky deal.
BC Rail....a very murky deal.
BC Hydro...more murky deals.

From Oxford Dictionary:
murky adj. 3. suspiciously obscure.

Thanks for your postings Grant G.

Leah said...

Grant, a huge thank you for your diligence in bringing this to light. I'll be keeping a close watch for developments, as it appears that you are the only one asking questions about this. We owe you our support for this. Blessings.

kootcoot said...

As to your last question (though this whole scheme is so convoluted, it is very difficult to understand):

Was the privatization of BC Ferries (with all the bad consequences)an elaborate scheme to merely raise money for the province and Campbell`s budget woes in fiscal 2004/2005?

I think it has to be more and Campbell and cronies are also pocketing ill-gotten gains somehow. If it was just a matter of fudging the books and making the budget look good for re-election, all he has to do is use his normal tactic of LYING - it works and our sick excuse for a press never bothers to challenge him and by now most of the sheeple would believe the sky was filled with diamonds if GlowBall/Canned Waste said Gordo said so!

Anonymous said...

I’d never come across this blog before, so I apologize for such a late posting. It is, however, a subject I find interesting, so – here goes.

The asset transaction/structuring that created BC Ferries is not particularly mysterious, though the quasi-corporate structure that was created is, indeed, unique. In terms of the transfer of assets into the newly created entity, I expect that the government of the day had two choices: do it for a nominal amount (the proverbial peppercorn), or something that reflected approximate fair market value for the assets. For good or ill, they chose the latter (which benefited BC taxpayers in general, though not those of us who rely on the ferries for regular travel, in particular). A "debenture" is not an unusual financial instrument. At its essence, it is really no more than loan agreement. There are two basic flavours: secured (analogous to a mortgage on your house), or unsecured (similar to your credit card, or unsecured personal loan).

On the debenture, if Ms Marshall's letter actually says that the province “gave” BC Ferries a debenture, she is mistaken. Rather, what happened was that, as payment for the assets being transferred to it, the new corporation issued a debenture to the BC Government, acknowledging that it owed the BC Government the agreed purchase price for those assets (about $427 million). Interest was payable on this debt by the new corporation to the government; the interest rate was set at 5.13%/annum. That means the cost of operating the new ferry structure was increased by more than $20 million / year. Initially, this interest was paid to the government (while it held the debenture). It currently is being paid to bondholders.

Overall, it wasn’t entirely clear to me what point you were trying to make in your posting. Personally, I think it was wrong to saddle the new corporation with this debt, particularly given the wretched state of BC Ferry's capital assets at the time of transfer; on the other hand, it did redound to the benefit of BC taxpayers in general (since the Ferry Corporation, as you rightly note, went into the public debt market, raising money through the issuance of bonds, the proceeds of which were used to repay the government its $427 million plus interest). [See part II of posting]

Anonymous said...

Part II

The initial asset transfer / debt repayment is not particularly difficult to unravel and the money paid for the assets would have been booked in the province’s general revenues. The actual corporate structure, however, is best described as “opaque”. There are two entities: The BC Ferry Authority (call this the “parent company” or the “Authority”) and British Columbia Ferry Services Inc. (call this the “operating company”). The Authority holds the single issued share of the operating company. Its job is to oversee the operating company.

The parent company is a truly unique creature – it has been created by statute (rather than incorporated, like an normal company, under the BC Corporations Act), and is a corporation without share capital. So, no one actually owns it. On dissolution, however, any assets of the parent company vest in the province. What is totally unclear in the legislation, however, is what authority the parent company has to divest itself of the single share in the operating company. The legislation (the Coastal Ferry Act) reads as follows (s. 2):

“The purposes of the Authority are to
(a) do any or all of hold, administer AND SELL a voting share in BCFS [the operating company], and
(b) oversee BCFS in accordance with Division 2.1.”
[Emphasis added]

There are no apparent limitations in the statute on the ability of the Authority to sell the single voting share of the operating company. Very odd, indeed. (At present, according to the annual reports, the single share is still held by the Authority – so it’s not sitting in Cayman Islands, as one commentator suggested on an earlier post; indeed, if the Authority sells the share, it would be wound up.) Presumably, this is the mechanism by which the BC Government can elect to reacquire the operating company, if it so chooses. In point of fact, however, absent further legislation, there is nothing in the Coastal Ferry Act that would enable the Government to force the parent company to sell the share in the operating company. There also is nothing in the legislation that would prevent the Authority from selling the share to someone else.

The preference shares themselves are interesting. The preference shares are non-voting shares in the operating company (not the parent company). It means that each year, BC Ferry Services pays more than $6 million in dividends to the BC Government - a fact that is often lost or ignored when the issue of the quantum of subsidies for this mode of transport is discussed. Thus, the total amount of subsidy cited by the government should be reduced by the amount of dividends the government receives from the Ferry Corporation. Additionally, as noted above, the government’s decision to charge near-market value for the assets also added more than $20 million/year to the operating costs of the new company. To put that another way: if they’d transferred the assets for $1, the amount the annual subsidy need to operate the service at its current levels, would be more than $20 million less than it is currently.