Sun, Feb 18, 2018
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. Chenavari, a $5.4bn hedge fund, told investors it thinks 'we could experience a similar pattern as the 1987 crash'[more]

    From Businessinsider.com: A $5.4 billion hedge fund told clients markets could tumble just like they did in the 1987 crash. In a February 14 letter to clients, London-based Chenavari Investment Managers warned about current market conditions. From the letter (emphasis added): "Our view is that

  2. Active funds shone in selloff, just like they said they would[more]

    From Bloomberg.com: For years, it's been the same refrain. Don't bail on active management, you'll regret it when the market turns sour. And while the selloff that ripped through equities this month has been too short to prove anything, early returns suggest they had a point. Thanks to differentiate

  3. No place to hide: managed futures funds fall with stocks[more]

    From Barrons.com: Managed futures mutual funds haven't lived up to their billing of providing uncorrelated returns so far in 2018, continuing a disappointing multiyear stretch. The $10 billion AQR Managed Futures Strategy, the largest fund by a wide margin in the category, was down 2.75% year-to-dat

  4. Investing - Hedge fund Bridgewater makes $22 billion bet against European firms, Hedge funds Steadfast and Suvretta jump onto CSX in fourth quarter, Tepper's Appaloosa boosts Apple, Facebook as others bolt, Third Point buys Netflix and MGM, dumps Bank of America, Moore Capital bought Wynn Resorts, other casino stocks before Steve Wynn resigned[more]

    Hedge fund Bridgewater makes $22 billion bet against European firms From Reuters/USNews.com: Bridgewater has shown its hand in Europe with a $22 billion bet against some of the continent's biggest companies, filings reviewed by Reuters show, part of a bigger shift by the world's largest

  5. Funds Profiles - Brother-run hedge fund up 46% in 2017 says Kelly formula shows diversification is flawed, How a 6,000% profit on a single trade saved a small hedge fund from disaster[more]

    Brother-run hedge fund up 46% in 2017 says Kelly formula shows diversification is flawed From Valuewalk.com: When Jeremy and Michael Kahan consider the notion of diversification, the wince. With a return of 45.8% to end 2017, their stock-picking fund, North Peak Capital, successfully