Fortress noteholders to get 45c in the dollar

Macquarie has pulled the plug on its NZDX-listed Fortress Notes by selling the underlying portfolio of US corporate loans.

Thursday, August 25th 2011, 9:51PM

by Jenny Ruth

Macquarie says the sale proceeds will be used to repay debt put in place in April 2008 and the remaining cash balance of about 45 cents per note will be returned to noteholders which means they will crystalise a capital loss of 55 cents in the dollar.

 

The notes jumped to 40 cents in the dollar after trading resumed compared with 27 cents last Friday when Macquarie suspended trading.

The $28.7 million of notes were issued in May 2005 with an 11.5% coupon and were not due to mature until May next year. Their value was badly affected by the global financial crisis with net asset value (NAV) falling to zero in October 2008 before gradually recovering to 46.1 cents at June 30 this year.

"The decision to sell the portfolio was taken by (Macquarie) after considering a range of issues including factors such as the current uncertainty in global financial markets, the average price at which loans were trading as well as the expected legal maturity of the loans in the portfolio," says director Peter Lucas.

"This analysis suggested that on a risk-adjusted basis and given the time value of money, the sale of the portfolio would be in the best interests of noteholders, especially having regard to the uncertain global economic outlook," Lucas says.

Under the 2008 debt facility, which meant Macquarie wasn't forced to sell loans as their market value declined in order to repay debt, interest payments to noteholders were suspended. They had received 29.5 cents per note until then.

Lucas says investors should receive their payments "in no sooner than 60 days to allow sufficient time for all loan sale transactions to settle and to complete relevant regulatory and legal requirements."

Under the 2008 debt facility, which meant Macquarie wasn't forced to sell loans as their market value declined in order to repay debt as the previous banking arrangements had mandated, interest payments to noteholders were suspended. They had received 29.5 cents per note until then.

Back in late 2008, Macquarie estimated under a best case scenario investors might get back 86 cents in the dollar after about five years and its worst case scenario was 69 cents in the dollar, based on then loan default rates.

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