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| ISTC founder Tiernan O'Mahoney |
Bank lenders to International Securities Trading Corporation (ISTC), the biggest Irish casualty of the global credit crisis, which is the subject of a €5 million purchase offer for 100% of the business, from UK brokerage Collins Stewart, will get 12 cent in the euro, if the sale is approved. Some 125 investors of €43m in Friends First Creative Bonds will receive nothing.
The bank lenders to ISTC include ABN-Amro, Bank of America, Merrill Lynch, Morgan Stanley and Royal Bank of Scotland.
They are expected to support a deal proposed by ISTC examiner John McStay, at a creditors' meeting next Tuesday. It has also to be approved by the High Court.
Unsubordinated creditors include Friends First, which said according to the Irish Times, that holders of two of its unit-linked investment products will receive no return. Its Creative Bond and Creative Step-Up Bonds were invested solely in subordinated loan notes issued by ISTC.
Some 37 investors put €15m in the Creative Bond product in December 2006 and another 88 investors put €28m in the Creative Step-Up product in June last year.
"The loss created by the ISTC bonds is a major blow to the policyholders, and a grave disappointment to Friends First, who produced the bonds in a transparent and professional manner," Friends First said.
"The nature of the product was fully defined and the potential risk to income and capital clearly explained in writing in the accompanying literature and acknowledged by each investor."
The firm's debts were estimated at €871m when it sought High Court protection last November after scrapping a €150m fundraising and writing down investments by at least €70m.
In September last, it had cash on hand of some €160m but market volatility had reduced that sum to about €30m in November.
Earlier in November, ISTC announced that it had been impacted by the freeze-up in the structured investment vehicle (SIV) market, delaying its results and suspending the "grey market" trade in its shares. SIVs are off-balance sheet vehicles. They are designed to get cheaper financing by borrowing in the short-term commercial paper market. They invest the money in higher-yielding assets and paying the returns to holders of their longer-dated capital notes, which rank after commercial paper for repayment and are first in line for losses.
In May 2007, ISTC reported a very strong financial performance for the six month period to 15 March 2007, with profit before tax up 300% on comparative figures for 2006 - to €6.8m.
"The original ISTC business model was good, supplying capital to the banking community," said Terry Smith, Chairman of Collins Stewart said earlier this week. "We intend to return the company to its original core business. There is evidently even greater demand for the supply of capital to banks today and this is where ISTC's expertise lies. We will seek to rebuild its business using Collins Stewart's expertise and relationships."
ISTC was established in 2005 by former Anglo Irish Bank director Tiarnan O'Mahoney. Leading Irish business figures including Seán Quinn and Denis O'Brien invested €165m.
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| ISTC was founded in May 2005 by Tiarnan O'Mahoney, former Chief Operating Officer of Anglo Irish Bank, and employs 18 people.
High net worth investors had to put up a minimum of €2m each. O'Mahoney invested €5m to take a stake in the business.
ISTC raised €165m compared with an initial target of €100m.
"The real attraction of this business is that you are lending to the highest quality borrower that there is. Banks are highly regulated, with the regulator ensuring they are in a position to meet their obligations. That's why I think it's such a safe form of business. You can't say that banks don't fail, but everybody agrees banks are a fairly safe bet," O' Mahoney told the Sunday Business Post..
In May 2007, ISTC reported a very strong financial performance for the six month period to 15 March 2007, with profit before tax up 300% on comparative figures for 2006 to €6.8m.
Announcing the results, ISTC Chairman, Raymond J.R. French, said:"The very strong financial performance for the first six months to 15 March 2007 clearly evidences the robustness of ISTC's business model. The Board and management look forward with great confidence to the second half of the 2007 financial year and beyond. We have revised our profit before tax target for the 2007 financial year upwards to a minimum of €15m, from the €13.5m which we had indicated at the publication of our 2006 accounts. Achievement of the revised PBT forecast will represent more than a doubling of profits in comparison with 2006, underpinning our confidence in the growth prospects of the business."
A grey market in ISTC shares managed by Goodbody Stockbrokers had seen approximately 15% of the company's equity traded, with the then current share price of €325 showing a strong premium to the July 2005 issue price of €100 per share.
"There is only one objective of International Securities Trading, and that is to make money. This is unashamed capitalism," O'Mahoney had said before the launch. |
