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ING unveils new rescue plan for CDO funds

ING has come up with a new proposal for investors in its two distressed CDO backed funds.

Thursday, February 26th 2009, 5:48AM

Under the latest proposal investors can get a guaranteed return in five years’ time or they can cash out now at a lower price.

The company has dumped an earlier proposal where it planned to make a $100 million non-recourse loan to investors, which would be repaid as the funds were wound up. Any remaining funds from this process would be returned to investors over time.

ING New Zealand chief executive Helen Troup said the company had received a lot of feedback on the earlier proposal and decided to come up with something new.

Under the proposal announced yesterday, investors in the Diversified Yield Fund (DYF) and Regular Income Fund (RIF) will be given two choices. They can choose to be guaranteed a minimum price in five years’ time for their units or they can cash out of the funds at a lower price now.

The five-year price for the DYF is 83 cents per unit and 86 cents per unit for the RIF.

Troup says that this will see most investors receiving the bulk of their investment returned.

The five-year price is based on the amount of money that current investors put in, subtracting their total gross distributions and dividing that total by the number of units held.

Alternatively, investors who want to exit now will be able to “cash out” their units for a lower amount equivalent to the guaranteed amount in today’s dollar terms, which is 60 cents per unit for the DYF and 62 cents per unit for the RIF.

The cash out option is based on a net present value calculation of the five-year price and delivers liquidity to investors who choose this option.

Troup says the current unit prices for DYF and RIF are 27c and 21c respectively.

She says ING NZ’s shareholders have committed to underwrite the offer and it could cost up to $500 million depending on which options investors choose.

ING plans to have unitholder meetings in June to vote on the proposal.

Troup says there is no Plan B. If unitholders don’t approve the plan then the funds will remain frozen.

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