PrefBlog

ROC Pref Corp III has announced:

that the decision of the Board of Directors of CIT Group Inc.
(“CIT”) to proceed with a prepackaged plan of reorganization is expected to constitute a credit event under the credit linked note (“CLN”) issued by TD Bank to which the Company has exposure.
…
The recovery rate for ROC Pref III Corp. is fixed at 40%. As a result, the CIT credit event is expected to reduce the number of additional credit events that ROC Pref III Corp. can sustain before the payment of $25.00 per Preferred Share at maturity is adversely affected from 1.6 to 0.6.

As indicated in a press release dated September 4, 2009, given the events of the credit market over the past year and the credit events that have occurred in the underlying portfolio, the Manager and Investment Advisor believe that a restructuring may be necessary in order to preserve the maximum value available to preferred shareholders. The Company expects to be in a position to announce a restructuring plan in November 2009.

ROC Pref III Corp. is listed for trading on the Toronto Stock Exchange under the symbol RPB.PR.A and is
scheduled to be redeemed on March 23, 2012.

The September 4 announcement was very light on details; it’s difficult to see just what may be done. September 30, the portfolio had 127 names; 6 of which had previously defaulted. Now it’s seven and the recovery rate drops off very sharply commencing with about 7.9 defaults; when eleven defaults have been experienced, recovery on the note – according to the original prospectus – is a big fat zero. They’ve already reorganized once:

Connor Clark & Lunn Capital Markets (the “Manager”) and Connor Clark & Lunn Investment Management (the “Investment Manager”) felt it was prudent to undertake certain restructuring initiatives during the quarter to increase the likelihood that ROC III will be able to repay the $25.00 preferred share issue price at maturity. These initiatives include: (i) the trading reserve account was used to buy additional subordination in the credit linked note (which increases the “safety cushion” by increasing the number of defaults the reference portfolio can withstand before the principal and interest payable on the credit linked note is adversely affected); (ii) coupons on the credit linked note payable from December 2008 to June 2009 have been sold to TD Bank in exchange for additional subordination; and (iii) the Manager’s deferred management fee has been made available for the benefit of the preferred shareholders. These restructuring initiatives were reviewed and approved by the independent members of the Company’s board of directors.

RPB.PR.A was last mentioned on PrefBlog when the reorganization idea was floated. RPB.PR.A is not tracked by HIMIPref™.

This entry was posted on Monday, November 2nd, 2009 at 8:29 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.