discredit - risk.net · bury the hatchet Doc.qxd 06/04/2004 12:13 Page 7. A Parmalat office cleaner has found the ... helped slide me in through the back door. ...

discreditApril 1, 2004

Volume 1 Issue 01

Treasurers reject newcovenant proposal

Treasurers reject newcovenant proposal

Setback in bondholder search for Promised Land

www.creditmag.com

ParmalatMissing billions found

iBoxx and Trac-xIndex providers

bury the hatchet

Doc.qxd 06/04/2004 12:13 Page 7

A Parmalat office cleaner has found thecompany’s missing €10 billion down theback of a sofa at the company’s headquar-ters in Parma, Italy. According to thecleaner, she was checking the sofa in Par-malat’s reception for spare change whenshe found a bag containing €10 billion.

The disappearance of the money, origi-nally believed to be lost in a bank account inthe Cayman Islands, forced the Italian com-pany to write off the money as a loss anddefault on its €14 billion worth of bonds.

After an internal investigation failed totrack the money down, it was decided thata credible story needed to be fabricated.According to a company spokesperson:“When we lost all this money, we decidedthat a suspicious offshore vehicle, with acontrived name like ‘black hole’, was a

much more credible explanation for whathad happened.”

A Parmalat spokesperson has deniedreports that the cleaner was also CEO offour Parmalat subsidiaries. A spokespersonfor Parmalat’s bondholders says: “Oh well,that’s alright then. Easy mistake to make.”

The rating agencies reaffirmed the dairycompany’s investment-grade rating.

1 discredit APRIL 1, 2004

special issue

Corporate treasurers have reacted angrilyto what they see as excessively tightcovenant demands from a group of bond-holders.

The proposals put forward by KevinMoses at Red Sea Asset Managementinclude such requests as not stealing,killing or coveting a colleague’s wife.

David Pharoah, head of treasury atPyramid Borrowing Co, says: “We don’tfeel it’s appropriate to enter a negotiationwith bondholders on these proposals.”He points out that the request to not wor-ship false idols or take the Lord’s name invain is sufficient to put many borrowersout of business.

Treasurers have warned that if bond-holders press ahead with their demands,corporates will be forced to resort to theBabylonian ur market.

Found! Parmalat’s billionsTreasurersreject newcovenant plan

Cover story

The offending sofa (left), and how Credit

covered the story in February

DealWatchA who’s who of the buy side receiveda welcome fillip as a flood of newblockbuster blowout deals made asplash in the credit market. The deals,which sold like hot cakes, came flyingoff the shelves, bursting through theyield curve and hitting all the relevantinvestor bases in the process.

“A strong credit story enabled theissuer to hit all the right buttons as thebonds established a new benchmark,”says one syndicate banker. “Thesebonds provide diversification at thesweet spot in the curve and investorswere only too eager to lap them up.”

Meanwhile high-yield Polish firmKrappola, which makes cleaning fluidfor the components of the factoryequipment that manufactures heavy-duty agricultural products, has issued a€500m bond. The structure is notablefor its total lack of any covenants what-soever, as well as the fact that it isdomiciled in a Calcutta PO box. “This isdisgraceful,” complained one investor,adding: “Put me down for €100m.”

News

ThirdBank has today launched what itclaims is “the most ridiculously complexand impenetrable credit derivative knownto man”.

The CDO4 takes traditional CDO-squared technology and logarithmicallydoubles it using innovative “extra-dimen-sional tranching”, effectively creatingcredit risk to the power of four. Head ofstructured credit at ThirdBank, Abe Smith,says: “Investors are now able to select thejuiciest chunks from a four-dimensionalcredit risk matrix to extract value.”

ThirdBank CEO Walter Fruff hailedthe new product. “While I cannot evenbegin to understand the nature of our

structured credit team’s achievement, restassured they will all be awarded gargan-tuan bonuses,” he says.

CDO4 launch mystifies market

Bondholders of US internet start-up SpamXwere enraged to learn that the entire pro-ceeds of last year’s $100 million high-yield

bond offering hadbeen spent on thefirm’s 2003Christmas party.

SpamX’s quar-terly accountsreveal that $98mwas spent treatingequity sponsors to

champagne, fine wines, canapés andFerrero Rocher. Entertainments includedcabaret acts, fire-breathers, an oxygen bar,life-size table football, and dodgems. Afurther $2m was spent paying for equitysponsors’ taxis home.

“We bought those bonds under assur-ances that SpamX was committed to cut-ting debt,” says one irate bondholder. “Idon’t see how having former US presidentBill Clinton as the after-dinner speaker foryour Xmas party fits in with that.”

Bond issue pays for Xmas party

CDO4 structure

CDO of CDO2 of CDOs

Go

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Kiss yo

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on

ey go

od

bye

SPV tuckedaway offshore

Don’t evengo there

Somethingto confuse

you

Blah, blah, blah

Where’s it gone?

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www.creditmag.com

special issue

discredit APRIL 1, 2004 2

A bit

A bit more

talkingNow you're

Shed loads

Source: Pilar Folos

The sky’s the limit

Europe’s credit market, which has lacked ahome since its inception in 1999, hasannounced its intention to move to Cam-den market in North London. Aspokesperson for the credit market, IvorBond, says: “We needed a location and thebohemian atmosphere of Camden marketsuited our transient spirit perfectly.” Smith-fields market near trendy Clerkenwell wasalso considered but a bank is planning ontearing it down to build a new head office.

Camden market stallholders are under-stood to be furious with the decision. “Idon’t want this junk next to my stall,” saysSimon Warburg, who sells pirate videos inCamden market. “If you buy somethingfrom me and it goes kaput, I’ll take it back,no questions asked – all you need is areceipt,” says Warburg. “But, you buysomething from these credit market tradersand it goes bad that’s it, you’ve had it.Caveat emptor is all they keep saying.”

Credit market relocatesto Camden market

News

Charting the market

As head of credit at Cityfirm, WilliamWellington-Boote is no stranger to the cutand thrust of the credit markets. “It’s aman’s world. You’ve got to fight your cor-ner, stand up and be counted. No room fornamby-pambies in our game.”

Wellington-Boote attributes his successin the world of credit to an early career inthe army. After passing out from Sand-hurst, he saw active service in hotspots suchas Tring and Newport-Pagnell. “Let metell you, Buckinghamshire is a rough place,especially at closing time.”

Wellington-Boote received an hon-ourable discharge after accidentally shoot-ing himself in the foot (“Forgot to put thebloody safety on!”), and joined Citifirmsoon after.

He explains: “I was lunching at theArmy & Navy club when I ran into an old

school chum. We boarded together atMarlborough. He told me Cityfirm werelooking for someone of my talents, and hehelped slide me in through the back door.”William Wellington-Boote hasn’t lookedback since.

So what does the future hold for a manwho boasts his middle name is ‘credit’?“Never look beyond today,” he says. “Any-way, did I tell you, this is a man’s world...”

In brief

Age 38

Status Married, with mistress

Children Two

Car Range Rover

Motto Don’t shoot till you see the whites of their eyes

In a shock result, the second round of the ‘Brawl on the Wall’ (WallStreet) has ended in an amicable friendship between the two fight-ing tradable credit indices, i ‘the boxer’ Boxx and ‘tradable’ Trac-x.The original ‘Brawl on the Wall’ (London Wall), saw the two trad-able indices reach a gruesome stalemate.

The decider (which was moved to New York after the twoindices could not agree on whether the payment should includecash or just be on credit) appears to have ended with both indicesmaking up and deciding to leave the ring as one giant index.

It is not clear whether the two will return to London as onefighting index or if a third Brawl on the Wall (Wallside in EC2) willbe necessary.

iBoxx and Trac-x calltruce, smoke peace pipe

Profile: William Wellington-Boote

Axe of the monthClifton BarnesGlobalBank

We have a wealth ofone of the most yieldyassets in the market,Landesbank paper. The abolition ofgrandfathering will boost returns, sohurry while stocks last – and they will.

Elliot BlickPenney, Smart

US wireless firm Dis-connected is back inthe market with aPolish zloty benchmark issue, to financea fibreoptic network, Fubar, in Kaza-khstan. Our books are full to bursting.

Ilana ProsineckiSOB

Pensioner insurerGettold is a marketstalwart. Prices havebeen volatile but the firm is an oldfavourite and insurance is an agelessbusiness. Buy the bonds before the mar-ket goes stale.

Tony MineroBallgrow Investments

Italian firm FrontiMafiosi is a sure flyer.The car giant mayhave some credit risk, but that will notput off yield-hungry investors. We havenot seen their numbers, but who will?

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