Peregrine, Madoff, AMR, LightSquared, MF: Bankruptcy

MF Global Holdings Ltd.’s $1 billion in unsecured bonds are trading for about twice what holders will recover in bankruptcy, according to a report from CRT Capital Group LLC. The company, formerly run by Jon Corzine, is the owner of bankrupt commodity broker MF Global Inc.

CRT’s “mid-case” analysis shows a recovery of 34 percent for holders of $1.016 billion in four issues of unsecured bonds of the holding company, according to Kevin Starke, who based his conclusion on a late November report from the U.K. brokerage subsidiary and a separate report last week by the trustee for the U.S. brokerage. Starke is a managing director with Stamford, Connecticut-based CRT, which buys and sells distressed debt.

By contrast, the $325 million in 6.25 percent unsecured bonds maturing 2016 traded at 12:11 p.m. for 65 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“I want someone to tell me where I’m wrong because I don’t see how they recover 65 cents,” Starke said in an interview.

To be sure, Starke qualified his evaluation by saying that unsecured bondholders could recover 100 percent in his “high case.” Still, Starke said “too many things have to go right to hit the high end of the range.”

The size of recoveries by creditors of the MF Global holding company depend in part on amounts collected by the brokerage subsidiaries in the U.S. and the U.K.

Chewed Up

“Value in the two broker dealer entities gets chewed up on the way up to the holding company because much of the value held by the parent is in the form of subordinated debt,” Starke said.

Starke’s report projects that creditors on the $1.175 billion in revolving credits are “likely” to recover 65 percent.

Starke also believes U.S. customers are “likely” to have full recovery. So-called 30.7 claims from trading in futures or options on foreign exchanges are being quoted from 91.5 to 92.5 cents on the dollar, Starke said. For so-called 4d customers with commodity futures and options accounts, claims are being quoted between 97.5 percent and 98.5 percent, according to Starke.

The MF Global Holdings Ltd. parent and the commodity brokerage subsidiary, MF Global Inc., went into separate bankruptcies on Oct. 31. The holding-company parent is under control of a Chapter 11 trustee, while the broker is under control of a separate trustee selected by the Securities Investor Protection Corp. When the liquidation began, there was a shortfall of about $1.6 billion in supposedly segregated customer property.

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.

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