Creditors of failed Icelandic lender Kaupthing Bank hf may get their claims settled in about a year as the bank’s winding-up committee looks into the option of swapping debt for equity.
“We could see issuing some kind of financial instruments to the creditors in a year’s time,” said Olafur Gardarsson, the head of Kaupthing’s winding-up committee, in an interview. “Those who need the money can cash out and others that want to see a greater return on their investment can choose to sit back and wait.”
Kaupthing, which failed in October 2008 after it was unable to access wholesale markets, faces total claims of about $56 billion, according to a creditors report published last month. Investors who bought bonds in the bank can expect 26.25 cents back on the euro, data provided by brokerage H.F. Verdbref hf show. Iceland’s special prosecutor is still investigating former Kaupthing executives for crimes including market manipulation and forgery.
Creditors will have the freedom to choose how their claims are settled as far as is possible, Gardarsson said. Each creditor will learn the status of his claim on Dec. 3. Kaupthing formally entered winding-up proceedings on Nov. 22, following a ruling by the District Court of Reykjavik. The measure brought to an end a moratorium on debt repayment, the bank said then.
After handling the claims, Kaupthing “has the opportunity to enter a composition agreement,” Gardarsson said. “How each claim was handled doesn’t really matter; whether they were approved or rejected.”
Since Kaupthing’s failure, the bank’s resolution committee, on behalf of creditors, agreed to take an 87 percent stake in Arion Bank hf, a state-created unit comprising Kaupthing’s domestic assets. The unit will be put toward covering claims, though some bond holders say they never agreed to the transaction.
Creditors can choose to run the bank as an asset management company or “they could change this into a company in full operation, which would then issue new loans and be a fully functioning company,” Gardarsson said. “We have to find a variety of exit points” for creditors with different demands, he said.
UBS Calls Madoff Trustee’s Claims in $2 Billion Suit ‘Unfounded’
UBS AG, the Swiss wealth-management firm sued for fraud by the trustee liquidating jailed con man Bernard L. Madoff’s assets, denied complicity in the Ponzi scheme and said clients knew with whom they were dealing.
Irving H. Picard, trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, is seeking at least $2 billion in behalf of Madoff’s victims, according to the complaint, filed Nov. 23 in U.S. Bankruptcy Court in New York.
The allegations “are completely unfounded and without merit,” Kelly Smith, a spokeswoman for UBS, said in an e-mailed statement. One fund sponsored by UBS “was created at the explicit request of wealthy clients who requested a tailor-made fund to enable them to continue investing their assets with Madoff,” Smith said.
“UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal,” she said.
Picard is seeking redemptions and fees from Zurich-based UBS as well as damages and disgorgement.
“Madoff’s scheme could not have been accomplished unless UBS had agreed not only to look the other way, but also to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did,” David J. Sheehan, a partner at Baker & Hostetler LLP and counsel for Picard, said in an e-mailed statement.
The complaint, alleges 23 counts of financial fraud and misconduct against UBS “and related entities and individuals.” The full complaint was filed under seal, followed by a redacted version blanking out information deemed confidential by UBS, Switzerland’s largest bank.
Picard suggests UBS tried to distance itself from the convicted New Yorker. In a 2005 memo, one UBS-sponsored fund said neither of two affiliates “should ever enter into a direct contact with Bernard Madoff!!!” according to the complaint.
UBS “took this unusual step so as to avoid creating any sort of record concerning any inquiry regarding Madoff,” the complaint says.
Madoff insisted “that his name not appear in any official offering document” relating to the feeder funds, Picard said.
“By complying with Madoff’s demand for secrecy,” the defendants “ignored a red flag” and “assisted Madoff in concealing the size and scope of his expanding fraud,” according to Picard.
A-Tec’s AE&E Gets Court Approval to Reorganize Debt
A-Tec Industries AG’s AE&E construction unit received court clearance to reorganize debt after it failed to sell the company or unfreeze a 798 million-euro ($1.06 billion) credit line.
AE&E will be managed by an administrator after it filed for reorganization proceedings at the Vienna Commercial Court on Nov. 24, the company said in a statement. Under the restructuring, which is part of the insolvency process, creditors are being offered 20 percent of what they are owed, AE&E said.
A-Tec requested a self-administered debt restructuring on Oct. 20 that didn’t affect its four units, of which AE&E is the biggest. AE&E, which builds power plants for utilities and steel makers, had 1.8 billion euros of revenue and pretax profit of 73.7 million euros in 2009, according to A-Tec’s annual report.
Talks between AE&E and banks including BNP Paribas SA, Commerzbank AG, Erste Group Bank AG and Raiffeisen Bank International AG, over 97 million euros in bridge financing collapsed on Nov. 15. The banks had suspended a 798 million-euro credit line in mid-October.
AE&E had been trying to sell itself and potential buyers included Austria’s Andritz AG, Mass Financial Corp. of Hong Kong and Korea’s Doosan Heavy Industries and Construction Co., A-Tec said in a separate statement.
A-Tec will adapt its restructuring plan to account for AE&E’s filing, A-Tec said. Its Chief Executive Officer and majority shareholder Mirko Kovats is offering A-Tec creditors a 25.1 percent stake in the company, the company said.
Lehman, Nortel Challenge U.K. Regulator Over Pension Debt
Lehman Brothers Holdings Inc.’s European unit and Nortel Networks Corp. told a judge they shouldn’t have to pay a combined 2.25 billion-pound ($3.55 billion) bill to prop up the U.K. pension funds of the bankrupt companies.
Nortel lawyer William Trower said at a hearing in London on Nov. 24 that the pension regulator doesn’t have the power to issue so called financial-support directions against companies that are in administration or liquidation. The regulator in September told Lehman’s unit to cover a deficit of 148 million pounds and in July sought 2.1 million pounds from Nortel to address the underfunding of its plan.
“If Parliament had intended an FSD to be an administration expense, Parliament would also have required the pensions regulator to take into account the consequences of the FSD on the administration,” said Trower, who said he was speaking on behalf of both Nortel and Lehman.
Lehman Brothers filed the largest bankruptcy in U.S. history in September 2008, and the U.K. unit is being liquidated in London. Nortel and affiliates filed for bankruptcy in the U.S. and Canada in January 2009 while its U.K. operations were placed in administration.
The case is: Nortel Networks & ors. v The Pension Regulator.
To contact the editor responsible for this story: Anthony Aarons at aaarons@Bloomberg.net.