Ireland’s ISTC warns on SIV woes, postpones results

DUBLIN/LONDON - International Securities Trading Corp (ISTC) became the latest victim of the crisis in the structured investment vehicle (SIV) market, postponing its results and suspending ‘grey’ market trade in its shares.

By (Reuters)

Published: Mon 12 Nov 2007, 5:14 PM

Last updated: Sat 4 Apr 2015, 11:15 PM

The Dublin-based company, which also cancelled a convertible bond issue, said on Monday it expected to take at one-off charge of at least 70 million euros ($103 million) as it revalues $305 million worth of SIV capital notes in its portfolio.

‘The turmoil experienced in financial markets since July last is unprecedented,’ ISTC said in a statement.

ISTC, which specialises in bank capital lending, was founded in 2005 by Managing Director Tiarnan O Mahoney, a former chief operating officer at Anglo Irish Bank.

The group said market conditions in the banking sector were some of the most difficult and challenging of the past 30 years, echoing comments made last week by Deutsche Bank Chief Executive Josef Ackermann at the Reuters Finance Summit.

SIVs, which hold some $320 billion of assets, have seen their access to funding dry up and the value of their assets fall, leading their credit ratings to come under pressure and some to be forced into restructuring.

SIV capital noteholders are the most junior debtholders and as such are at most risk of losses if SIVs—which invest in a mixture of bank debt and asset-backed securities—are forced to wind down.

Ratings agency Moody’s Investors Service said last week many SIV managers believe the structure cannot continue in its current form.

Rating downgrade

ISTC said all its SIV assets, which make up 7 percent of its loan portfolio, had been either downgraded or put on review for downgrade by Moody’s last week.

As a result, ‘ISTC believes that it will now have difficulty in retaining the existing financing or alternatively obtaining new financing for the SIV capital note portfolio,’ the company said in a statement.

It said it would delay the publication of its financial results for the year ended Sept. 15, 2007, by ‘a matter of weeks’ while it values the SIV portfolio and as a result, had stopped marketing a convertible bond launched on Oct. 26.

The company has not disclosed who its founding investors were, but local media have reported they included some of the biggest names in Irish business, such as Caribbean telecoms magnate Denis O’Brien, Anglo Irish Bank Chairman Sean FitzPatrick, paper packaging manufacturer Smurfit Kappa’s Chief Executive Gary McGann and Sean Quinn, owner of one of Ireland’s largest private companies, insurer Quinn Group.

ISTC had been planning to issue a 150 million euro five-year subordinated convertible bond that was to have paid a 9 percent coupon. The bond was to have given the firm additional firepower to invest in a market where returns were higher after the repricing in the market.

Ratings agency DBRS late on Friday cut ISTC’s debt ratings to a ‘junk’-grade BB from BBB, and said it might cut them again.

It said around 80 percent of ISTC’s portfolio was in bank hybrid capital. It said the SIV holdings differed from the bulk of ISTC’s assets in that they have to be marked to market and therefore any writedowns would impact liquidity and capitalisation.

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