1 Comment 1 Commentby Jenny Ruth
"Despite the best efforts of our fund manager, the value of the fund is not likely to improve materially," the manager told the stock exchange.
The NZDX-listed fund's market value has dropped from $88.5 million on July 29 to $81.3 million on August 4 and to $71.5 million on August 5.
That's well below the estimated $79.05 million threshhold to pay the next coupon on the 9.25% bonds due on January 16.
The fund invests in "A" or better rated debt securities and derivatives in New Zealand, Australia and the US.
"A significant proportion of the fund will have to be de-levered over the next few days. This means there is a high probability that future coupons will be suspended," the manager says.
"There is also a risk that the net asset value of the fund could fall below the bond floor requiring the close-out of the fund," it says.
Fidelity chief executive Milton Jennings says he can't say what the floor actually is "becasue we haven't released it to the exchange."
The floor is determined by a complicated formula laid out in the trust deed.
The bonds were issued in early 2007. Coupon payments were first suspended in January 2008 but that was paid with the July 2008 coupon.
They were again suspended in January and July 2009 and those were paid together with the January 2010 coupon.
If the fund is liquidated, investors will miss out on all coupons through to the bonds' maturity on July 15, 2013, at which point bondholders will at least get their capital back because the bonds are guaranteed by Westpac Bank.
The manager says it will make a further announcement when it knows whether the fund will be closed out. "Meanwhile, investors should continue to exercise caution."
By 12.20 pm following the announcement, five investors owning 85,000 bonds had already rushed to exit, the few last selling at $86.959 per $100 face value, a yield of 18% compared with the last trade before the announcement at 10%. The yield has climbed from 8.70% in early August.
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