Fri, Sep 22, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

MF Global’s $300m bond offering stirs controversy with Corzine clause

Wednesday, August 03, 2011

Jon S. Corzine
Opalesque Industry Update – MF Global Holdings Ltd., a broker-dealer providing trading and hedging solutions, yesterday announced a $300m underwritten public offering of senior unsecured debt (senior notes) subject to market conditions and other factors.

MF Global added it would use a portion of the net proceeds of the offering to repay part of its outstanding indebtedness under its $1.2bn revolving credit facility and for general corporate purposes.

Nothing unusual about that. But what is stirring controversy in Wall Street is the "Key Man Event" clause in the bonds’ prospectus. Reports indicate that MF Global is promising additional compensation for investors who buy the company’s bonds with an interest-rate bump if its Chairman and CEO Jon Corzine accepts a job in Washington as part of President Barack Obama’s team. The Wall Street Journal termed the clause as “the Corzine premium.”

The premium stipulates a one-percentage-point extra atop the $300m bond offering, or up to $15m, should Corzine decide to leave MF Global and accept a federal position and should his appointment be confirmed by the U.S. Senate before July 1, 2013.

According to the Wall Street Journal’s report, the 64-year-old former governor of New Jersey ran Goldman Sachs Group Inc. from 1994 to 1990 and was a senator from 2001 to 2006. Corzine joined MF Global in 2010 and was responsible for taking risk with the company’s assets with the aim of re-establishing the firm as a mid-sized investment bank. He also changed MF Global’s capital structure to reduce borrowing costs. Under his helm, MF Global’s shares rose 9.5% compared to the Standard & Poor’s 500 Financials Index which fell 4.9%.

A staunch Democrat, he is also one of the biggest contributors to Obama’s 2012 re-election bid.

Unusual clause
Several hedge fund managers and industry insiders seem surprised with the “key man” clause.

However, the Wall Street Journal claims that it is not unusual at all for companies to provide “key man” as an insurance if a senior executive or a key official becomes incapacitated, dies or transfers to another firm. The report explained that many investment firms, as well as private equity companies, provide a clause preventing investment decisions if major portfolio managers leave at once.

But industry players say this provision are rarely enforced because the clause is often binded to another clause that says it can only be used if multiple managers depart at once.

Marketing gimmick
There are also those, according to Reuters, who say the provision was more a reflection of MF Global's savvy financing tactics than an indication that President Barack Obama is considering Corzine for a job.

Kenneth C. Froewiss, a finance professor at New York University's Stern School of Business, told Reuters: "I doubt that it's likely to happen. Probably more a case of investor wariness."
Komfie Manalo


Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Asia - Hedge funds used to love shorting China. Now, not so much, Fledgling China FoFs require careful use: NCSSF, Amac, Japanese banks turn to PE, hedge funds for returns[more]

    Hedge funds used to love shorting China. Now, not so much From Bloomberg.com: A sharp devaluation. A credit crisis. And an economic hard landing. That's what some of the biggest names in the hedge fund industry were predicting for China after the nation's stocks and currency tumbled in 2

  2. Launches - Orchard launches new credit platform, ETN based on hedge fund to launch on the LSE[more]

    Orchard launches new credit platform Orchard Platform has rolled out Deals as a part of its new platform launch. With the addition of Deals to their suite of technology solutions for loan originators and institutional investors, Orchard Platform takes the next step in their evolution. De

  3. Neuberger Berman closes $1.1bn Credit Opportunities Fund[more]

    Neuberger Berman, a private, independent, employee-owned investment manager, announced that NB Private Equity Credit Opportunities Fund LP closed on $1.1 billion of limited partner commitments. The Fund seeks to invest in the secured and unsecured debt of private equity-backed companies, primarily i

  4. Capital Dynamics launches mid-market private credit business[more]

    Capital Dynamics, a global private asset manager, has launched a dedicated Private Credit Asset Management business. Experienced industry executives Jens Ernberg and Thomas Hall have joined Capital Dynamics to co-lead the company's new private credit initiative. They are based in Capital Dynamics' N

  5. ...And Finally - FAN-antic[more]

    From Newsoftheweird.com: Jeffrey Riegel, 56, of Port Republic, New Jersey, left 'em laughing with his obituary's parting shot at the Philadelphia Eagles. In it, Riegel asked that eight Eagles players act as pallbearers, "so the Eagles can let me down one last time." Riegel owned season tickets for 3