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Credit Sails Timeline

August 19, 2010

Credit Sails Timeline

Prepared by Logic Fund Management

10 August, 2010


  • October – First Icelandic banking crisis.  U.S. money market funds refuse to extend credit to Icelandic Banks.
  • October – December – Change in quoting activity by market players, for example, static CDOs being used as capital guarantees.  Logic was aware of this at the time.


“The credit boom in Iceland gives most cause for concern . . . the risk is that if the credit cycle turns and equity and property prices fall sharply, banks will suffer a deterioration in loan quality with an adverse impact on financial performance. Icelandic banks, through a combination of direct equity holdings and collateralised exposure to Icelandic corporates, have a relatively large exposure to the small and volatile stock market. ”

– Fitch Ratings, February 6, 2006

“At this stage, we have very poor visibility … as to how asset quality may evolve at the banks. However, we do have some concrete reasons to be concerned about the impact of a cyclical change in the credit cycle at the Icelandic banks.”

– Merrill Lynch, March 7, 2006

“. . . in terms of big risks to the banks themselves, we think they are (assuming the funding holds) the crossholdings and related party and equity based lending. Given the small domestic market, it is perhaps not surprising that there is some level of cross-holdings among the major investment companies, corporates and banks, but we are surprised at the level.”

– JP Morgan, March 24, 2006

  • May – Credit Sails launched in New Zealand.
  • Internal selling document generated and supplied to Forsyth Barr sales force.  Two teach-ins for sales force failed.
  • May – June – Landsbanki, Glitner, Washington Mutual and Idearc were added into the Credit Sails portfolio.  These were not in the original investment statement.
  • May – September – Multiple one-way deals launched, for example, Abacus, Timberwolf, Dead Presidents etc…


  • January 10– Credit Sails placed on negative creditwatch
  • April – Bear Stern’s fixed income hedge fund face major demands for additional collateral.  CDO Market collapses. 
  • April 13 – Credit Sails downgraded to negative credit watch
  • May 29 – Credit Sails downgraded to negative credit watch
  • June – Bear Stern’s high grade structured credit strategies and enhanced leverage fund explode.  Trigger for NZ, people at Forsyth Barr were able to decipher that Credit Sails was heading downhill and an exit strategy was necessary.
  • June 22 – Credit Sails downgraded to negative credit watch
  • July 10 – First buyback by Calyon 10.8M
  • July 11 – E-mail from Forsyth Barr to client:
  • We are concerned about Credit Sails and the quality of the capital guarantee via the CDO and have arranged for a weekly buy back from the French Investment Bank who arranged this investment.”  “I will sell your 40,000 into this facility to preerve capital…at the expense of one year’s interest we can take away the current risk to your capital.
  • August – Basis Capital Fund Management (Australia) – fails due to exposure to CDO investments.
  • August 24 – Credit Sails downgraded to negative credit watch
  • September – Collapse of Lehman Brothers.  Credit Sails Quarterly Payments suspended and not paid from this point forward.

  • October – 2nd buyback by Calyon
  • December 31 – Momentum Notes lost 21% of value down to $72 million


  • February 29 – Credit Sails issues year results for year ended 31 December, 2007.  Most relevant is Comment ii.) “Returns to shareholders including distributions and buy backs – NIL” – Please see attached.

  • June 30 – Momentum Notes lost value down to $54.9

  • September 25 – Washington Mutual is seized by the Federal Deposit Insurance Corporation.
  • Forsyth Barr Investment Adviser emphasizes number point in offer document to client that there must be eight credit events before the capital is eroded.  We note there were only six.

  • October – Three Icelandic banks placed into receivership, Kaupthing Banki, Landsbanki Islands and Glitner Banki.  They were critical pieces of the Momentum Note’s underlying portfolio.
  • Standard & Poors put the credit rating of the Credit Sails on watch negative.
  • November – Cayman Islands – cancels all future interest payments after reserves fell to below one percent of the principal, causing a “strategic unwind” of the portfolio through exposure to failures of Lehman Brothers, Washington Mutual and Icelandic banks.


  • January – Credit Sails has lost about 70% of the principal.
  • February – NZ Permanent Trustee issues letter to Credit Sails Registry informing clients of potential for credit default losses.  They note that at this time, no Event of Default has occurred.
  • May 13 – Credit Sails informs NZX that each note with a denomination of $1000, investors can expect a return of $11.66, plus interest, in 2012.


  • April – Goldman Sachs fraud. Ends with settlement in July.
  • May – Morgan Stanley – Dead Presidents
  • May – New York Attorney General subpoena Credit Agricole.  In Febraury, 2010, Calyon (promoter and arranger of Credit Sails) officially changed name to Credit Agricole.
  • July 22 – NZ Permanent Trustees issues 2nd letter to Credit Sails Registry
  • July – Credit Sails investors receive mixed messages from Forsyth Barr Advisers concerning the buyback.
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