Movers: Bank offers pay proposal for Refco Capital clients
Bloomberg News
FRIDAY, FEBRUARY 3, 2006
NEW YORK: Customers of Refco Capital Markets would be offered 23 cents to 65 cents on the dollar in cash under a proposal by the investment bank Abadi to buy the bankrupt futures trader.
Under the plan submitted to U.S. bankruptcy court on Thursday, customers of Refco Capital Markets, an offshore unit of Refco, the bankrupt futures broker, would have the option of getting some of their money back in the form of cash, shares or notes. The proposal was attached to a court filing objecting to a pending motion to liquidate Refco Capital Markets.
"The sponsors believe they have the support of sufficient current and former personnel to launch significant operations almost immediately," Abadi said in papers filed in bankruptcy court in New York. The other Refco bidders, or sponsors, are Greylock Capital, a private equity firm, and Dresdner Kleinwort Wasserstein Securities.
Refco Capital Markets filed for bankruptcy protection in October along with its parent and 22 affiliates. In December, customers of Refco Capital Markets asked the court to order the company liquidated under Chapter 7 of the bankruptcy code, rather than restructured under Chapter 11. Abadi, objecting to that request, filed its proposal Thursday.
The customers want their cash and securities, as much as $3.67 billion, returned in full. Refco has said it intends to treat the funds as unsecured debt. Unsecured creditors typically receive 40 cents on the dollar in large restructurings. Abadi's proposal could render the issue moot.
The plan describes a two-step process. First it discounts the customer's claim by a certain percentage based on the type of account it comes from. Foreign-exchange accounts, for instance, would be discounted 65 percent.
A customer would then have the option of taking 65 cents on the dollar for the remaining 35 percent, leaving the customer with 23 cents a share. Or customers could take the riskier option of accepting common shares in the new enterprise valued at 100 percent of their remaining 35 percent.
Holders of custody accounts could cash out for 65 cents on the dollar or get the full value of their claim in common shares. The value of the common shares would increase, depending on recoveries from litigation stemming from Refco's collapse and other potential sources of income.
Customers could also opt to buy notes, have their accounts managed by the new company or manage their own accounts. The higher the risk of each choice, the more of the customer's account value would be retained.
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The higher the risk of each choice, the more of the customer's account value would be retained.
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