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A2A also disclosed in its notice to creditors that it owes $12.7-million to two numbered companies controlled by Sean McCoshen, who is the driving force behind the railway project.The Globe and Mail

Alaska-Alberta Railway Development Corp., Bridging Finance Inc.’s largest borrower, has told clients it plans to file for creditor protection, creating more uncertainty for the 26,000 Bridging investors who are waiting to hear what will come of their money.

The railway company, which goes by A2A, owes $208-million to Bridging but has informed the private lender and others that it will seek creditor protection. Bridging also has a $109-million equity stake in the company, according to the lender’s own valuation.

A2A was created with a vision to build a railway between Fort McMurray and the ports of Alaska. The ambitious project is in its infancy and requires multiple approvals from governments and many First Nations communities before any construction can begin.

A2A also disclosed in its notice to creditors that it owes $12.7-million to two numbered companies controlled by Sean McCoshen, who is the driving force behind the railway project but who has faced scrutiny over the past few weeks because of alleged kickbacks paid to Bridging’s former chief executive. The Globe has also uncovered a trail of controversy throughout Mr. McCoshen’s dealmaking history.

Bridging is currently under the control of a receiver, PricewaterhouseCoopers LLP, following allegations the money manager improperly used investor funds to benefit some of its founders and executives. The Ontario Securities Commission is also investigating whether some Bridging officers and directors perpetrated a fraud on unitholders and whether certain officers made misleading or untrue statements to the regulator. The OSC has yet to announce formal allegations on these matters.

The receiver is currently reviewing Bridging’s loan portfolio, and it could take some time for investors to hear how much money they’re likely to get back. PwC has provided interim updates as it goes through the books, and its most recent report alleged Bridging’s former CEO, David Sharpe, asked an employee to delete thousands of emails amid queries from Ontario’s securities regulator. PwC also called for the repayment of the A2A loan, citing concerning irregularities.

In a letter to Bridging’s investors, PwC said it had identified a number of “issues of concern” with the A2A loan, citing transactions that “appear to be outside the normal course of business of Bridging.”

PwC found a dozen transfers of Bridging funds as part of the A2A loan since 2015, some of which were deposited in a numbered company controlled by Mr. McCoshen. The receiver noted it “has been unable to determine the commercial relationship” between the company and A2A.

PwC noted the numbered company is the same one the OSC alleges transferred $19.5-million to Mr. Sharpe’s personal chequing account between 2016 and 2019.

PwC has also found documents that show a $25.5-million transfer of Bridging funds to A2A was sent directly to a personal bank account of Mr. McCoshen.

The numbered company and the name “Sean McCoshen” are two of the search terms that were used when Bridging was looking for emails to be deleted, PwC alleges.

The receiver has sought to question Mr. McCoshen about these transactions but was informed that he was unable to respond because he is too ill. PwC asked for proof of his medical condition but as of last week had received none.

A2A’s creditor protection filings, which have been posted by a proposed trustee, are dated June 18 and include a signature. A source familiar with Mr. McCoshen’s business activities said the signature was his.

A2A has fallen into disarray in recent weeks, culminating in its intention to file for creditor protection, which was first reported by industry publication Insolvency Insider.

Lately the company has been hit with employee departures. Its legal counsel has resigned, as has J.P. Gladu, the former head of the Canadian Council for Aboriginal Business, who signed on as A2A’s president and worked to engage Indigenous communities, whose support is crucial for the railway’s development.

Mr. Gladu sent in his resignation letter on June 2, which was obtained by The Globe. “The events over the past month concerning Bridging Finance Inc. have significantly compromised the vision of A2A Rail and put the project’s future in immediate peril,” he wrote in the letter. “The uncertainty emerging out of recent events have undermined the carefully constructed relationships I have worked hard to build with the Indigenous peoples and governments of the Canadian Northwest.”

In mid-May, the railway developer told the receiver it expects to have $1-million in cash on hand after making some payments.

A2A’s pending filing for creditor protection isn’t the first for Bridging Finance’s largest loans this year. In January, Allied Track Services Inc. also filed for creditor protection, with hopes of selling the business to someone who could right-size its balance sheet.

The company started out as an Ontario family business focused on industrial railway construction, and over time, it morphed into a multinational company with divisions such as track signalling and timber bridge repair. Bridging became Allied’s lead lender in recent years, extending roughly $100-million in debt.

Yet by the start of 2021, Allied’s track maintenance division was deep in the red. In January, an external review valued Allied’s assets at around $40-million, less than half the size of Bridging’s loan.

Despite running a sales process, none of the 106 prospective purchasers who were approached submitted a formal bid, and in April, Bridging had to swap its debt for equity in Allied – which no one else seemed to want.

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