Friday, July 29, 2016

The Clock Is Ticking...

On July 25, 2016, UDF IV received written notice from Nasdaq Hearings Panel that Nasdaq Global Select Market will continue to list UDF IV stock.  UDF IV's stock is currently halted.  The Nasdaq decision is contingent upon UDF IV meeting certain listing requirements, in particular it has to file with the SEC 2016's first and second quarter financial statements and 2015's audited financial statements by September 12, 2016.

UDF IV's auditor resigned last November.  A new auditor, EisnerAmper, LLP, was announced on June 8, 2016, which was good news for the mortgage REIT.  The new auditor is presumably working to complete UDF IV's financial statements before the September deadline.  I expect ugly results when and if UDF IV's stock is allowed to resume trading as investors will rush to exit.  Audited financial statements or not, UDF IV remains under investigation by the FBI and SEC and is in default on a term loan that had $28.5 million outstanding as of May 23, 2016.  The following passage from UDF IV's 8-K filing describing the default shows the level of financial restrictions it faces as a result of the default:
The Trust (UDF IV) is required to use a portion of its future available cash flow to pay transaction expenses, interest due under the Loan, and principal. The Trust has agreed to provide certain financial reporting to the Lenders and it has agreed to suspend distributions to its shareholders during the Forbearance Period. The Trust also agreed not to originate new mortgage loans, incur additional debt, grant additional or substitute collateral to any other lender, or dispose of assets without first obtaining the consent of the Lenders.
 I want UDF IV to resolve its issues.  Its financial statements are at the top of my summer reading list.

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