Fri, Jul 3, 2015
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. Opalesque Exclusive: New systematic strategy managed alongside research firm outperforms S&P500[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: An emerging CTA manager explains how he runs his strategy, which is based on an index produced by a research firm. Peter Turk is head of

  2. Opalesque Exclusive: New systematic strategy embraces machine learning[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: The founder of a New York-based systematic trading firm, which offers a hybrid between alpha strategies and alternative feta at lower fees, describes his approa

  3. Larry Robbins' hedge fund Glenview buys 1m Tenet Healthcare shares[more]

    Komfie Manalo, Opalesque Asia: Glenview Capital Management said it bought an additional 979,482 shares at Tenet Healthcare Corp valued at $53.80 million, raising its stakes in the healthcare services company to 15.16%, reported

  4. Legal - Grayson’s hedge funds under scrutiny for possible ethics violations, Court rejects hedge fund’s motion to block merger of Samsung affiliates[more]

    Grayson’s hedge funds under scrutiny for possible ethics violations From Freebeacon.com: Rep. Alan Grayson is finding himself in hot water over managing hedge funds that bear his name, actions that are in possible violation of House ethics rules. Sitting members of Congress are prohibite

  5. Hedge funds decline in June as stocks tumble on Greek woes[more]

    From Bloomberg.com: Hedge funds posted losses across strategies last month as uncertainty over whether Greece will remain in the euro sent global stock markets tumbling. Winton Capital Management declined about 3.1 percent in June in its $12.1 billion Winton Futures Fund, leaving it down 1.9 percent

 

banner