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The Buy Back

October 22, 2010

The Buy-back

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In July of 2007, just over one year after investors were first sold Credit Sails; Forsyth Barr began to offer some of their clients the opportunity to sell out of their notes.  This was first illuminated through various letters and e-mails from Forsyth Barr, but further research confirmed the exchange of approximately $19m worth of Credit Sails notes on the New Zealand Stock Exchange.


The following charts were provided by the NZX and illustrate both the 10 July and 11 October, 2007 buy-backs:



Match date Capture time Security code Market Price Quantity Value Buyer name Seller name
10-JUL-07 2007-07-10 10:49:16 CSAFA NZDX 93.6 10500000 9828000 Forsyth Barr Limited Forsyth Barr Limited
10-JUL-07 2007-07-10 15:07:06 CSAFA NZDX 93.6 15000 14040 Forsyth Barr Limited Forsyth Barr Limited







The collective buy-back of $19,014,056 was recorded in the 2007 Calyon quarterly reports as seen in the chart below, however in the Credit Sails 2007 yearly report to the NZX, there was no mention of the buy-back anywhere.






A July, 2007 e-mail written by Forsyth Barr Christchurch adviser, Liz Douglas, seems to suggest that Forsyth Barr arranged the buy-back and urgent action was required:



I tried to phone (work, home, cell) but no luck….we are concerned about Credit Sails and the quality of the capital guarantee via the CDO and have arranged for weekly buy back from the French Investment Bank who arranged this investment.


A separate letter from 2008 by Margaret Irwin, the Wellington Forsyth Barr Branch Manager describes the buy-back more clearly and confirms the trades found on the NZX:


I made a decision to sell all of the Credit Sails investments when Caylon announced their first on market buy-back.  This occurred on 10 July 2007 at 0.93383 cents per $1.00 note.  At the same time I rang my ‘non-discretionary’ clients advising them of the buy-back.  Some clients decided to accept the buy-back, some decided not to…In October 2007 there was a second opportunity to sell at 0.872 cents per $1.00 note.


In order to judge who was offered the buy-back and who was not we asked members of the Credit Sails Community to write to their advisers and ask the following two questions:


1.)    When did you become aware of the Credit Sails buy-back?

2.)    If you were aware why was I not able to participate?


The early responses proved to be the most fruitful.  The following is Dunedin based Forsyth Barr adviser Susan Kinnaird’s response:


Yes, we are aware of Logic and we are in the process of writing a letter to all our clients in response to their comments and claims.

In short, yes there were two buy backs by Calyon, but Credit Sails was a listed investment and therefore able to be traded by investors on the secondary market throughout most of it’s life.  As with any listed security, it was always a question of whether there was a reason to sell and was the price fair.

I note that when the two buy-backs occurred (in June & Oct 2007) Credit Sails had suffered no defaults and still had an A rating.

One Christchurch based investor summarised his adviser’s answer to the questions:


As far as he knew Forsyth Barr did not engineer the buyback, was not an organised party to it and the broking side of the business was not involved.  As a broker he knew at the time that Credit Sails were buying back their own shares because the market had them underpriced, but he denies that the broking side of the business received any instructions to take action. He claimed to be unaware of any direct approach to Forsyth Barr clients to sell their Credit Sails shares. The investment banking side of the business, which according to my broker does not reveal to the broking side what it is doing, may have been taking instructed action. However he maintained adamantly that Forsyth Barr was not in any way directly involved in the buyback or promoting it.


Another note holder who had a recent meeting with Forsyth Barr was encouraged to join their portfolio management service, a common arrangement where the broker charges fees on an annual percentage basis rather than on dealing, with the particular benefit being that had he been such a client they could have got him out of Credit Sails.


By early August Forsyth Barr had issued a generic response for this issue and many of you may recognize the following:


There have been some comments in the media and from other parties regarding a “buyback” of Credit Sails by the Issuer, Calyon. Please note that these securities were listed on the NZX from the time of issue in June 2006 and were therefore tradable for the two years leading up to any credit events being announced by the Issuer.  Investors and brokers participated in this trading, as did Forsyth Barr clients, both buying and selling securities.

We are aware the Issuer (Calyon) chose to purchase securities during this period when they believed they were trading at a discount. These transactions were reported to the NZX but we are not aware they had made any formal buyback offer to all investors.


To our knowledge the geographic distribution of those offered the buyback appears to have been centered in Auckland, Wellington, and Christchurch.  Advisers from other firms were unaware of the buy-back by Calyon and by the response generated by some internal Forsyth Barr advisers; it seems that not everyone within their company was aware of the buy-back.

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