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ING births plan nine months after freeze

Nearly nine months after ING suspended redemptions in its two big credit funds it is now scrambling to put together a rescue plan, of sorts, and start communicating with investors and advisers about its plans.

Thursday, December 11th 2008, 2:28AM
Key points
  • $100 mill loan equals around 15 cpu
  • Two to six years to wind up DYF and RIF
  • Fund values highly uncertain
  • ING "strongly refutes" funds mis-sold
The company hastily organised a conference call with advisers yesterday to outline the bones of a plan for its Diversified Yield Fund (DYF) and Regular Income Fund (RIF), and to announce two other funds, Credit Opportunities and Enhanced Yield, were being wound up.

ING’s new chief executive Helen Troup told Good Returns that she “apologises” for the company’s poor communication over what was happening with DYF and RIF since it suspended redemptions in March.

She acknowledged criticism the company had taken from advisers and investors over the lack of information around the funds was warranted.

Troup announced plans, but also acknowledged that there was still a lot of detail to be confirmed yet. Also she talked to advisers in a conference call, but didn’t take questions.

With DYF and RIF ING plan to ask the trustees to approve a plan where these funds are wound up and the proceeds returned to investors. As part of the plan there would be a $100 million loan from ING’s shareholders to provide some immediate payment to investors.

This is essentially a pre-payment of principal, or as the company describes it “a liquidity kicker”.

In reality it means investors will get about 15c in the dollar back straight away.

The real issue is how much the DYF and RIF funds assets are worth and how long it will take to realise them.

Troup told Good Returns she “doubted it would be less than two years” and a “maximum of six” to liquidate the funds. No-one really knows what they are worth.

Troup points out it is difficult to value the assets because of what is happening in markets.

One of the catches is that $100 million loan has to be repaid with interest before any of the proceeds flow back to investors.

She says if the funds recovered less than $100 million investors would not have to front up and repay the loan. It is a non-recourse loan.

Troup made a point to advisers that she doesn’t believe the funds are worth less than $100 million.

While the loan was $100 million, that does not mean that is what the funds are worth, she said.

However, she added the caveat that if there was “another disaster” in credit markets they could we worth less than $100 million.

She says while the capital value has been hammered, the assets are still generating coupon payments and investors are still getting interest. (With RIF these are quarterly payments and DYF are annual payments).

ING plans to have a meeting of investors before March 31 to vote on changes to the DYF and RIF trust deeds to allow this deal to happen.

Troup says there would be a couple of questions. The first being a choice of either managed wind up with the $100 mill loan or immediate wind up.

If investors go for the former then there is no other question. If they take the latter it is a choice between an immediate wind up or removal of the redemption suspension.

Mis-selling of funds
One of the issues which many have raised is whether ING mis-sold its credit funds to advisers. Troup “strongly refuted that”. She says the funds were “sold appropriately.”

However, she noted ING had no control how individual advisers represented the funds to clients.

Also Good Returns asked her about the amount of brand damage the credit funds had created for ING.

Her response was that the company could have provided better communications to investors and provided “more timely information on what’s happening.”

“Today is a change in approach,” she said.

« ING seeks to wind up distressed credit fundsSovereign takes regulation bull by the horns »

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