Dear Fellow Investors:

Many of you will have seen recent coverage in the Globe and Mail (April 28 and May 6 articles by Tim Kiladze) regarding the Woodbine Mall, and in particular, the court-approved reverse vesting order (RVO) under which this property will be acquired. The headlines of these articles (“… Romspen buys troubled mall …” and “ …Romspen owes itself $410-million …”) misdescribe what is occurring, and the articles themselves contain several significant factual inaccuracies. Given that we provided the reporter with detailed responses to his questions in advance of publication, much of which did not find its way into the articles, we are writing to explain why we chose the RVO route and to address these inaccuracies.

What is a reverse vesting order and why is it being used here?
An RVO “reverses” what normally happens when a distressed asset is sold. Normally, a receiver or monitor appointed by a court oversees the sale of a defaulting borrower’s assets, and upon a sale occurring, the court issues a “vesting order”, which conveys title to the assets to the purchaser. In an RVO, the court instead issues an order vesting title to the unwanted debts and liabilities of the borrower in a newly formed company, thus freeing the borrower of such liabilities, and the borrower itself can then be acquired by the purchaser (by way of ownership of the shares of the borrower), thereby indirectly becoming the new owner of the borrower’s assets.

RVO transactions have become a well-established tool in Canadian insolvency proceedings, supported by a robust and developed body of jurisprudence. The decision by Romspen to pursue an RVO was made after extensive consultation with our professional advisors, and was driven entirely by the potential tangible benefits it offers Fund investors. In particular, the RVO structure delivered millions of dollars in tax savings, avoided the cost and delay of transferring the Woodbine amusement park operating licences that remain a material revenue source at the property, and preserved our well-perfected mortgage on title. That last point matters: it provides meaningful optionality in how future proceeds are distributed and protects against future creditors upon eventual realization. These are concrete benefits for the Fund and its investors.

On accounting and NAV:
The article’s thinly-veiled suggestion that the RVO transaction structure was motivated by a desire to avoid a markdown is categorically false. As we communicated directly to the reporter, the Woodbine Mall loan’s contribution to the Fund’s net asset value is already materially lower than the gross debt amount, reflecting a substantial loan loss provision recorded in accordance with accepted accounting practices and supported by a recent independent third-party appraisal by a leading firm. Management does not override appraised values, which are reviewed by our auditors. The legal method by which loan collateral is acquired has no bearing on this accounting treatment.

On the $410-million amount:
The reporter characterized the result of the RVO as Romspen “owing itself” $410 million, framing it as unusual. We had explained to him that in an RVO, it is not uncommon for a secured creditor acquiring a borrower’s shares to retain existing debt within the acquired structure. There is nothing novel or extraordinary about this arrangement.

On the Woodbine Mall loan as a proportion of Fund assets:
The articles overstated this figure. As noted above, the Woodbine Mall loan is carried on the Fund’s balance sheet with reference to the appraised value of the underlying real estate, not at the gross contractual debt amount. This is a meaningful and important distinction that was absent in the reporting. 

We provided much of this context to the reporter prior to publication and are disappointed that it was not more fully reflected in the articles. As many of you know, and have noted to us, this is not the first time that the Globe and Mail has written about the Fund, and we have found that the fuller context we often provide is not fully reflected in the final articles. We raise this not to relitigate past coverage, but because we believe that incomplete or alarmist reporting on a fund in recovery can itself become an obstacle that unsettles investors, complicates ongoing negotiations, and consumes management time that is better directed toward managing and protecting your investments. That remains our focus. We are committed to transparent communication with you directly, and encourage you to weigh media coverage against the fuller picture we aim to provide in these communications with you. We will keep you informed and work diligently on your behalf as we seek to unlock this property’s value.

Sincerely yours,

The Trustees of Romspen Mortgage Investment Fund