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ODT – Credit Sails notes ‘virtually worthless’: commission

April 27, 2012

ODT – Credit Sails notes ‘virtually worthless’: commission


By Simon Hartley on Sat, 28 Apr 2012

The Commerce Commission’s 16-month investigation into the $91 million failure of Credit Sails notes, sold by southern broking house Forsyth Barr, is coming to an end.

In a separate, private group action, Wanaka-based Logic Fund Management believes it will reach a 25% majority threshold in a “proxy battle”, where investors will sign over their rights to about $2.28 million left over in the Credit Sails structure, which Logic would use to investigate and potentially fund legal action.

Logic Fund estimates that for every $10,000 invested in Credit Sails, the value now is $249.

Forsyth Barr managing director Neil Paviour-Smith said at the start of the investigation in December 2010 there had been “no wrongdoing” on the part of Forsyth Barr.

The “reality” was Credit Sails did not live up to the Standard & Poor’s rating, he said then.

Yesterday, he said the brokerage was still co-operating with the commission on the investigation, which “was being worked through thoroughly”.

The Commerce Commission update to investors released this week said the investigation had “advanced to the stage that it is now communicating its views to the parties involved” and expected to provide its next update this July or August.

No further public comment would be made until then.

Credit Sails was marketed and sold to the public in 2006 with the prospect of 8.5% interest income and capital protection.

The $91.5 million raised through the offer was from mainly small investors.

“The notes are now virtually worthless,” the commission said. Statements in some media recently that it was poised to announce compensation payments to investors “are not accurate”, the commission said.

Logic Fund Management chief executive Greg Marshall yesterday said the “proxy battle” was close to gaining the 25% majority, with about 270 Credit Sails investors having returned “yes” proxies.

He was pleased to see the commission update investors.

If it did not find in favour of investors he wanted an investigative committee, of himself and five other Credit Sails investors, which could request the trustee to “engage legal entities” to start legal proceedings against some (unnamed) parties, funded by the “residual” $2.28 million.

Mr Marshall believed it was “essential” the statutes of limitations provisions, which begin this June, be extended, which required the securitytrustee to take legal action now.

Credit Sails was a complex portfolio of “collateralised debt obligations” based on holding corporate bonds, which were lead-managed and underwritten by Forsyth Barr and issued by the Cayman Islands-registered Credit Sails Ltd.

It had been arranged by the Frenchinvestment bank Credit Agri-cole through a subsidiarycompany, Calyon.

Credit Sails offered investors an 8.5% annual return over six and a-half years, a capital guarantee and an AA rating from ratings agency Standard & Poor’s, in a portfolio comprised mainly of about 120 blue chip companies.

While it appeared a low-risk investment, it was in fact an extremely complicated investment vehicle.

Six companies in the bond portfolio defaulted on loans, including two Icelandic banks and Lehman Brothers, and by late 2008 the bonds of Credit Sails, which traded on the New Zealand debt exchange, were worthless. Investors lost not only the interest advertised but their capital.

Several charities and community groups, including the Hospice Southland Charitable Trust, the New Zealand Methodist Trust Association, the Youth Development Endowment Trust, the Roman Catholic Bishop of the Diocese ofDunedin, the Congregational Christian Church in Samoa and the Dunedin Orphans Club, were reported to have had Credit Sails investments.


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