Limestone Loan Capital: the bonds become trust units and the interest stops

Limestone Loan Capital Corporation has a registered office in Kingston, no employees, and, by its own account, one reason to exist. "The Company's sole purpose and use of the Bonds was to capitalize the Company to advance a loan(s) to SkyCap Financial, an affiliate of the Company, on a secured basis," its amended proposal says, per the Amended Proposal, June 18, 2026, Art. 2.1, pp. 11–12. Between 2019 and 2024 it sold bonds in eight series totalling $33,335,000 under a trust indenture with Olympia Trust Company as indenture trustee, which holds a general security agreement for the bondholders, and advanced $34.1 million to SkyCap Financial, the trade name of 2394260 Ontario Inc., at 15% or 17% a year compounded quarterly. The two companies are under the common control of Jeremy Wilson, Limestone's president and a director, although the economic ownership of each, held through non-voting interests, differs, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 12–20.

SkyCap made personal and mortgage loans to third-party borrowers. The reasons for what followed are management's, as the proposal trustee relays them: defaults rose above historical averages as the Canadian economy weakened from 2023, and on January 1, 2025 the Criminal Code's criminal interest threshold fell to 35% APR; when the change was announced, on May 31, 2024, SkyCap was charging up to 39.99%. SkyCap wrote off approximately $9.4 million of bad debt in 2024, against $2.9 million in 2023, and moved over 2024 and 2025 into secured mortgage lending, which management reports has so far incurred no losses. The losses in the unsecured book left the combined portfolio generating too little cash to service Limestone's loans, and on December 11, 2025 Limestone told its bondholders it could not make the maturity and interest payments due on December 15, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 12, 21–25.

PricewaterhouseCoopers Inc., LIT, retained in November 2025 as Limestone's financial adviser, filed the company's proposal with the Official Receiver under s. 62(1) of the Bankruptcy and Insolvency Act on June 9, 2026 and became its proposal trustee, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 1, 107. On July 20, Associate Justice Imran Kamal, signing as registrar in bankruptcy, approved it, per the Proposal Approval Order, July 20, 2026, para. 2.

$12.8 million against $35.2 million

The trustee put Limestone's assets, at their fair realizable value on the filing date, at $12,796,763: the SkyCap loans at $11,960,671, a 2025 federal tax refund of $586,092 and an estimated 2026 refund of $250,000, per the Report of Trustee on Proposal (Form 40), July 6, 2026, para. 13, Motion Record, p. 23. Against that stood approximately $35.2 million of bondholder claims, $27.6 million of principal plus accrued interest. The proposal divides each claim at the value of the security, approximately $12.8 million secured and the shortfall of approximately $22.4 million unsecured, and each bondholder voted the two portions in separate classes. On those values the trustee estimated the bondholders' claims at approximately $0.36 per $1.00 invested, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 14, 39–41. The trustee's list of creditors with claims of $250 or more has a single line: 523 creditors on the bonds, owed $35,156,275, per the Report of Trustee on Proposal (Form 40), July 6, 2026, Motion Record, p. 26.

If the proposal failed, the trustee expected Limestone to go bankrupt and demand repayment from SkyCap, which would likely wind down its portfolio, possibly in a formal insolvency proceeding of its own. Management's model of that wind-down returned $0.25 to $0.35 per $1 invested over approximately three years, on an assumption of undisturbed collections the trustee considered "likely optimistic," per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 71–75. A sale of the loan books was expected to recover less than either the proposal or the wind-down. The trustee reviewed the portfolio with its internal specialists and left out a recovery range "so as to not prejudice any potential future sale negotiations," per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 80, 82.

A trust that holds the loan

The proposal keeps the SkyCap loan and changes who holds it. On the effective date the bondholders' claims are released as against Limestone, and the bonds and their security pass through the trustee to a new Ontario mutual fund trust, which the trustee's report anticipated would be named Maplecrest Mortgage Fund, per the Proposal Trustee’s Report on Proposal, June 12, 2026, para. 37(a). Limestone satisfies the bonds by assigning the loan agreement with SkyCap, its cash and its 2025 and 2026 tax refunds to the trust; the indenture is terminated and the bonds cancelled. The loan is then restated to bear no interest and to mature on the earliest of a demand by the trust, an acceleration on default, or its tenth anniversary, with SkyCap repaying at least the trust's expenses each year. On a demand for full repayment before then, SkyCap may satisfy the loan by delivering its interests in the partnership that holds the portfolio and its general partner, with their cash, per the Amended Proposal, June 18, 2026, Art. 2.4, pp. 14–19. A separate term provides that ss. 95 to 101 of the BIA, which deal with preferences, transfers at undervalue and related transactions, do not apply to the proposal, per the Amended Proposal, June 18, 2026, Art. 11.2, p. 33.

SkyCap keeps managing the portfolio, for a fee on a cost-recovery basis until the Threshold Date, the first of the day the portfolio's net realizable value equals what SkyCap owes the trust and the day SkyCap transfers the portfolio in satisfaction of it. Until then Wilson's salary from SkyCap is capped at $125,000 a year, subject to cost-of-living adjustments, and any bonus needs an investor committee's approval, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 37(f), 67. Management's ten-year model puts the Threshold Date in year six. It assumes net yields of 19% to 21.9% on new mortgage lending and annual losses of 27.1% on the unsecured book, the average for April to August 2025; management noted that actual losses from December 2025 to April 2026 averaged 18.9%. The trustee said the model "remains subject to execution risk" but gave "a reasonable basis" for comparing the proposal with its alternatives, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 62–66. The structure is meant to preserve the tax losses SkyCap has accumulated, so that recoveries can be reinvested, and to keep bonds held in registered accounts registered, per the Proposal Trustee’s Report on Proposal, June 12, 2026, paras. 59–60.

Each bondholder with a proven claim gets an Entitlement Receipt for one unit per $1.00 of its claim as at September 15, 2025, before the Superintendent's levy, and interest and costs after that date are compromised and released, per the Amended Proposal, June 18, 2026, Art. 2.4(iii)(a), p. 18. The trustee said the date, the Unit NAV Date, "has been chosen as the date of the last interest payment to Bondholders," per the Proposal Trustee’s Report on Proposal, June 12, 2026, para. 46. How the units are counted is what the amendment changed. The June 9 proposal counted them against the secured portion of each claim; after queries from bondholders, Limestone filed an amended proposal on June 18 that counts them against the whole claim at the Unit NAV Date and spells out the release of later interest. The trustee said the change affected how many units are issued and not the value bondholders receive, per the Supplement to the Proposal Trustee’s Report, June 18, 2026, paras. 13–15, 17(b).