Tag Archives: bond

UPDATE 3-Third Avenue parts with CEO soon after collapse of junk bond fund -WSJ

The collapse of Third Avenue’s Focused Credit Fund jolted Wall Street and renewed worries about the difficulty of trading securities on the U.S. bond marketplace. New York-primarily based Third Avenue is a relatively modest investment manager with fund assets that totaled $ ten billion at the beginning of the year.

A security guard at Third Avenue’s headquarters said on Sunday that Barse had been let go and was not allowed back in the creating, the Wall Street Journal reported.

A Third Avenue representative declined to comment. Barse did not respond to calls. His function e mail bounced back with the message “undeliverable”.

Third Avenue’s Focused Credit Fund was overwhelmed with heavy losses and surging investor net withdrawals, forcing Barse to abruptly liquidate the fund and block redemptions.

The redemptions and losses more than the previous year cut the size of the Third Avenue Focused Credit Fund to $ 789 million from almost $ three billion. Run by Tom Lapointe, the fund bet on distressed situations, such as the bankruptcy-related claims of Lehman Brothers. In a letter to investors last year, Lapointe, who could not immediately be reached for comment, stated distressed assets in his portfolio had been not necessarily illiquid or hard to trade.

The fund’s collapse is a blow to the reputation of Third Avenue Founder Marty Whitman, regarded the dean of American vulture investing. He hired Barse in 1991 to oversee the firm’s operations so he could spend much more time pursuing his own investment techniques.

Whitman could not be reached for comment.

The blow-up of the Focused Credit Fund was the most significant mutual fund failure considering that the economic crisis. The fund’s collapse shows the dangers of loading up on risky assets that are tough to trade even in excellent instances.

Just before Barse, 53, joined Third Avenue, he worked as a bankruptcy attorney defending the rights of creditors. He had been CEO of Third Avenue because 2003.

Whitman was a leader in a strategy that includes bets on the outcomes of businesses going via bankruptcy and other distressed conditions. The 91-year-old’s book titled “Distress Investing” distills decades of understanding about the ins and outs of bankruptcy restructuring.

In 2002, Affiliated Managers Group Inc purchased a majority equity stake in Third Avenue, with the remaining portion held by a broad group of workers that incorporated Whitman and Barse. Third Avenue, nonetheless, continued to operate autonomously from AMG, which holds stakes in a quantity of boutique asset management firms. AMG could not quickly be reached for comment.

(Reporting by Sam Forgione, Tim McLaughlin and Ross Kerber editing by Grant McCool)

Puerto Rico risks creditor ire by hijacking income earmarked for bond payments

SAN JUAN/NEW YORK Puerto Rico might have dodged a bullet when it avoided default last week, but its selection to commandeer revenue that was supposed to meet future debt payments will invite creditor pushback and possibly lawsuits.

Creditors have extended criticized Puerto Rico’s spending habits, and could have the ammunition to bring those complaints to court now that the Caribbean island plans to divert funds to cover constitutionally-guaranteed debt and crucial government solutions.

The U.S. territory, which owes creditors $ 72 billion, final Tuesday avoided defaulting on a $ 355 million payment. But it owes yet another such payment on Jan. 1, which can only be produced if revenue that was earmarked to repay and service other debt owed by a variety of government agencies is repurposed, Governor Alejandro Garcia Padilla mentioned.

The island mentioned it also wants to use that income to hold some essential services operating, even though it has not specified which ones. Several creditors mentioned these so-called clawbacks are premature, and question no matter whether they will be utilized on truly important services.

The government hasn’t been particular about the revenue that will be grabbed. Bonds vulnerable to the switch contain $ four.six billion at Puerto Rico’s highway authority (HTA), $ 1.9 billion at its infrastructure authority (PRIFA), and added debt at a public transportation authority and convention center authority, according to an executive order signed by Garcia Padilla.

A single creditor supply with exposure at the affected agencies stated a lawsuit was achievable, insisting that clawbacks had been getting misused below Puerto Rico’s laws and constitution. “They haven’t met the needs to permit a clawback under the constitution … you can assume we’re searching at all the diverse avenues,” said the supply.

Two other sources mentioned that, while lawsuits are an alternative, they were far more inclined to wait to preserve their negotiating capacity.

“There is a really high probability of protracted litigation,” stated Ted Hampton, vice president at Moody’s Investors Service. “It is a bit like a race or some kind of competitors – people are waiting to jump in when the whistle blows.”

Hampton said he expected creditors would at least think about legal action over the clawbacks.

Puerto Rican officials have themselves acknowledged the prospective for lawsuits. Justice Secretary Cesar Miranda said last week that the clawbacks could open the door to litigation since they “could be interpreted as a technical default, in the way that we retain funds destined to eventually spend a debt when due.”

Creditors’ aggravation is likely to only enhance in the next few weeks. For instance, the island by December 20 owes $ 120 million in Christmas bonuses for public sector workers, which are a constitutional requirement in Puerto Rico. Paying them at the expense of bonds would likely irk creditors, however skipping them would outrage labor unions.

BRIDGE LOAN

Exactly how the diverted money is spent will invite investor scrutiny.

A 1980 law in Puerto Rico dictates that any clawbacks ought to be used initial to spend constitutionally backed debt, and then to fund crucial solutions. Puerto Rican officials recommended they program to use them for both purposes at as soon as.

“There is small query that (the clawbacks) are a patent attempt to revise the provisions of the constitution, legislation and contracts with out justification or required method,” stated Nader Tavakoli, interim president and chief executive officer of Ambac Economic (AMBC.O) , which insures about $ 1.1 billion principal of bonds at the affected agencies.

A lawsuit could also challenge the variety of solutions getting funded, particularly if they contain what creditors may claim are discretionary items like Christmas bonuses.

Nonetheless, creditors wary of litigation say they want to be careful not to hurt progress in ongoing talks with the island on a consensual debt restructuring agreement. “We implore the governor to get back to the negotiating table toward consensual options, which are achievable,” Tavakoli added.

Puerto Rico has mentioned it desires to structure a universal exchange offer you, or “superbond,” for creditors across a lot of various debt classes. Litigation would make that approach a lot more tough, mentioned many creditor sources, threatening the anticipated higher ratings of new debt that could attract creditors to an exchange provide in the initial spot.

If creditors can support the island to make its January payment without clawbacks, litigation might be avoided. Its subsequent significant maturity date is in May possibly, when $ 422.8 million is owed on senior Government Improvement Bank notes, according to a source familiar with the scenario. That enables much more time to talk, free of charge from the stress of looming defaults.

An offer you by at least two bond insurers to give a bridge loan to get Puerto Rico via January remains on the table, stated two sources close to the talks.

A lawsuit at this stage may possibly not succeed. With no a missed payment, clawbacks alone may possibly not convince a court of Puerto Rico’s wrongdoing, stated Height Securities Puerto Rico analyst Daniel Hanson. Creditors may possibly fare much better if they delay litigation till an actual default.

(Reporting by Nick Brown in San Juan and Megan Davies in New York Extra reporting by a contributor in San Juan Editing by Martin Howell)

UPDATE 1-U.S. stock, bond mutual funds see 4th straight week of withdrawals – Lipper

(New all through adds data and analyst quote) By Trevor Hunnicutt NEW YORK, Dec 3 Investors withdrew $  6.6 billion from U.S. stock and taxable-bond mutual funds in the course of the week that ended Dec. 2, Lipper data showed on Thursday, marking the fourth straight week of outflows for those investments. All round, stock funds posted $  920 million in outflows during the week, led by the mutual fund withdrawals, according to the Lipper information, which also measures exchange-traded funds. "Retail investors threw the child out with the bath water," stated Tom Roseen, head of analysis solutions at Lipper. "People are getting out of the way of a price hike." Roseen mentioned concern about the direction of U.S. Federal Reserve policy, mixed financial information and geopolitical concerns have weighed on retail investors. These issues also prompted a flight-to-good quality move into income-marketplace funds. That category attracted $  17.8 billion during the week, marking the second consecutive week of inflows for the low-threat investments, Lipper stated. Stock ETFs, by contrast, took in $  3.8 billion. The SPDR S&P 500 ETF took in about 71 percent of that amount, Lipper said. "They're saying, we really feel comfortable saying there may possibly be a Santa Claus rally here," Roseen stated of ETF investors, referring to a potential end-of-year run up in stock costs. Investors pulled $  2.1 billion in cash out of U.S.-listed taxable bond mutual funds and ETFs in the course of the week that ended Dec. 2, Lipper mentioned. Treasury funds posted $  1.three billion in outflows for the duration of the week, although high-yield corporate debt attracted $  398 million of inflows and broke a 3-week streak of outflows. Greater-credit investment-grade bond funds posted $  547 million in outflows. Emerging-marketplace stock funds extended their streak of outflows to five straight weeks, posting $  583 million in withdrawals in the most current period. The Lipper fund flow information is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds. The following is a broad breakdown of the flows for the week, such as exchange-traded funds (in $  billions): Sector Flow Chg % Assets Assets Count ($  Bil) ($  Bil) All Equity Funds -.920 -.02 five,236.782 11,819 Domestic Equities -.065 -.00 3,705.334 8,449 Non-Domestic Equities -.855 -.06 1,531.448 3,370 All Taxable Bond Funds -two.090 -.ten 2,200.798 six,070 All Cash Marketplace Funds 17.811 .76 2,350.362 1,163 All Municipal Bond Funds .364 .10 355.059 1,504 (Reporting by Trevor Hunnicutt Editing by Jennifer Ablan and Lisa Shumaker)

Brief-Eurosic issues one hundred mln euro bond

* Issues 10.5-yr bond of 100 million euros ($ 106.2 million)

* Bond has a fixed coupon of 3 pct

Source text for Eikon:

Further company coverage: ($ 1 = 0.9417 euros) (Gdynia Newsroom)

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China’s shadow banking risk shifts to booming bond industry

* Risky shadow banking borrowers moving into bond markets

* House, regional govt finance firms’ private placements up

* Leveraged bond investment goods selling briskly

* Bond leverage sharply up, yield spreads down

By Nathaniel Taplin and Engen Tham

SHANGHAI, Nov 29 A year following China’s economic regulators squared up to the systemic perils of “shadow banking”, the threat is shifting to a booming corporate bond marketplace, and risky borrowers’ debt is finding its way into merchandise aimed at retail investors.

An opaque network of trust organizations and non-bank lenders had grown their annual market place to a hefty two.9 trillion yuan ($ 450 billion) in loans before regulators stepped in, spooked by increasing defaults on wealth-management goods (WMPs) backed by such higher-interest shadow lending.

Now the high-danger borrowers who took those loans, such as unlisted genuine-estate firms struggling with a stagnant house industry and financing organizations backing shoddy neighborhood government investment, are discovering a new avenue of funding following regulators began allowing unlisted organizations to situation bonds on public exchanges.

New corporate bond issuance leaped to 914 billion yuan in the third quarter, accounting for 29 % of all new credit, up from 381 billion yuan and just eight % in the initial.

And the profile of new borrowers appears strikingly like the patrons of the shadow banking set.

Of the 57 firms posting bond listing announcements in Shanghai in October, 23 had been local-government-owned project or infrastructure investment firms.

Beijing engineered the freeing up of the bond markets as a transparent alternative funding route, and the credit crunch that followed its clampdown on shadow banking guaranteed a high take-up.

But wealth managers are now turning these bonds into leveraged high-yielding merchandise and promoting them to investors desperate for returns right after a true-estate slump and summer stock-industry crash.

Information from CN Advantage, a analysis firm tracking wealth management sales, shows that 60 % of new bank wealth-management products (WMPs) had been linked to debt and income market instruments in September, up from less than half in the very first quarter.

High YIELD, HOT DEMAND

Demand is hot for these goods, and the higher the yield, the larger the risk, which is amplified if the fund’s assets are partly purchased on credit, or leveraged.

Colight Asset Management, a private fund offering bond-backed WMPs, raised far more than 40 million yuan in just four days in November from an eight.7 % yielding, 400 % leveraged bond-based item, according to buyer service staff member Chen Xun.

Significantly bigger companies such as Pacific Asset Management Co. and the Agricultural Bank of China also supply related high-yielding leveraged merchandise.

Investors, nonetheless, assume that items provided by huge names are reasonably secure.

“The danger of default is extremely slim,” mentioned a 45 year-old business manager in Shanghai surnamed Pan who invests in WMPs on an exchange backed by China’s second-biggest insurer, Ping An Group. “I’m sure such a massive organization as Ping An will make positive investors can get their money back.”

Inflows to bond mutual funds have also risen.

Standard of such funds is the Excellent Wall Extended Term Profit Gradated Debt Fund, whose leading 3 holdings are all sub-AAA-rated nearby government fundraising business bonds. The firm adds leverage by borrowing cheaply in the bond repurchase (repo) market, fund documents show.

“So for instance you can take two billion yuan of government debt as collateral and obtain 750 to 800 million of money, and use that to buy much more debt,” mentioned an underwriter at an international bank in Shanghai who asked not to be named.

About half the Excellent Wall fund’s 19 percent return given that late 2014 has accrued given that July, a period when repo transactions in Shanghai soared, and the spread of AA corporate debt yields more than Chinese treasuries fell 60 basis points to 4-year lows.

Analysts say the narrowing corporate threat premium combined with weakening profits is a red flag for speculative activity.

“Comparable to what happened in China’s stock market earlier this year, the rally of bonds is largely driven by liquidity situations and speculation that government will provide support when necessary,” said Zhou Hao, Senior Emerging Markets Economist at Commerzbank in Singapore.

Some industry professionals worry that these trends, enabled by regulatory reform, will create forces that regulators can not handle when industry sentiment turns, in an echo of the stock market place boom that preceded the summer season crash and a frantic series of heavy-handed interventions by Beijing.

“If, as seems likely, the government has succeeded in acquiring funding to greater danger sectors by relaxing bond approvals,” wrote Christopher Wood of brokerage CLSA in a current note, “it is all rather scary, given the regulatory failures exposed by the A share boom-bust cycle.”

(Further reporting by the Shanghai Newsroom and Samuel Shen Editing by Nachum Kaplan and Will Waterman)