CL Financial faces US$188m margin call - Trustee demands action on depleting US$240m bond account
Published: Friday | October 2, 2009
Lascelles deMercado's head office on Dominica Drive in New Kingston. RBTT Trust Limited has given CL Financial the option of putting up shares in Lascelles or Republic Bank to cover the shortfall on the $240m bond account. - File
Troubled CL Financial Limited has been given two weeks by Port of Spain-based RBTT Trust Limited to replenish an account which has fallen short of a 150 per cent margin that the conglomerate is required to maintain as backing for bonds floated last year, correspondence obtained by the Financial Gleaner has revealed.
The margin account relates to US$240 million of notes issued by CL Financial.
"We wish to advise that the security margin of 150 per cent that you are required to maintain pursuant to Clause 4.1.2 of the trust deed and Clause 3.01(e) of the CL Spirits Charge of Shares - both dated July 21, 2008 - has not been met for the past two weeks ...," RBTT Trust wrote on Monday.
CL Spirits was the vehicle chiefly used by CL Financial to acquire Jamaican spirits conglomerate Lascelles deMercado and Company, as well as raise debt to help finance the US$9.25 per share deal that closed in July 2008.
RBTT has given CL Finan-cial two options: pay cash of US$188.26 million or offer up, as collateral, additional shares of similar value in one of two companies owned by the financial conglo-merate - the highly profitable spirits conglomerate Lascelles deMercado and Company based in Kingston or Republic Bank Limited domiciled in Port of Spain.
The financial group has 10 business days to comply from the date of the September 28 notice, but RBTT Trust did not spell out the consequences of missing the deadline.
Michael Carballo, chief financial officer of CL Financial, to whom the letter was addressed, said this week he was not aware of the correspondence and later added a "no comment" when reached by the Financial Gleaner.
CL Financial was rescued in January by the Trinidad government because it had run short of cash and was facing a liquidity crisis, suggesting that option two might be the company's likely recourse.
In the letter to Carballo, written by RBTT senior financial analyst S. Tewari and copied to First Citizen Trustee Services Limited general manager Christopher Sandy, the trust company said CL was already two weeks in breach, noting that at September 11, the margin on the account was 72.77 per cent, while a week later, it dropped minimally to 71.56 per cent.
"Based on the security margin as at Friday, September 18, 2009, we now advise that in order to maintain the prescribed minimum margin of 150 per cent, we require you to deposit further security to the value of USD188,264,140.28," Tewari advised Carballo.
Michael Carballo, chief financial officer of CL Financial Limited. - File
CL Financial could wire additional cash to the Cash Collateral Account at RBTT Bank Jamaica in Kingston or provide additional shares in Lascelles or Republic Bank, the letter instructed.
Were CL Financial to put up its Lascelles holdings as collateral, it would require posting more than 59.84 million ordinary shares, which would be the equivalent of the US$188.26 million (J$16.75 billion) at the conglomerate stock's current trading price of J$280 per share.
Or it would take more than 13.5 million Republic shares at the current trading price of TT$85.98.
CL owns 88.4 million of Lascelles' 96 million ordinary shares as well as more than 50,000 prefs - giving the Trinidad company 86.89 per cent of Lascelles and 97.15 per cent voting rights; while its 55 per cent ownership of Republic Bank is equivalent to more than 88 million shares.
Free fall transactions
The Lascelles acquisition that was valued at around US$640 million to US$650 million has been fingered as one of the transactions that helped put CL into free fall alongside its regional insurance business CLICO, forcing a government rescue of the conglomerate at the top of this year after Port of Spain determined that CLICO and CL were too big to be allowed to fail.
The Trinidad government now has control of the CL companies, including Republic bank, which is valued by assets at TT$41 billion; as well as oversight of Lascelles whose balance sheet assets top J$34 billion.
Shafeek Sultan-Khan, who was appointed in July to lead a reconstituted government-majority board of directors for CL Financial to oversee the restructuring of the indebted group, also said he was not aware of the letter as he was recently on vacation.
And RBTT's head of corporate communications, Paul Charles, said the bank had comment to make on the letter to CL Financial.
Sultan-Khan replaced 74-year-old Lawrence Duprey, the man who transformed CL Financial from an insurance group to a multibillion-dollar enterprise that owns 65 companies in 34 countries and was at the helm as chairman when the crash occurred.
Sultan-Khan also replaced Duprey as chairman of Lascelles in August.
Trinidad in mid-June signed an agreement with CL Financial shareholders and directors to place the management and control of the assets of the company in the hands of a new board to save a number of its debt-burdened companies that were the subject of a memorandum of understanding (MOU) last January.
The board comprises four government appointees and three CLF directors, including Carballo.
The MOU provides a package of financial support from the government with a number of conditions attached relating to the winding up of CLICO Investment Bank (CIB) and the rationalisation of assets and liabilities of CLICO and the British American Insurance Company.
It requires that CLF dispose of its 55 per cent shareholdings in Republic Bank Limited, its 56.33 per cent in Methanol Holdings Limited, and Caribbean Money Market Brokers Limited.
The agreement also comes with the rider that Trinidad would also dispose of 'all or any other assets' to repay the money the government will be providing during the restructuring, leaving spirits assets like Lascelles and Angostura Limited exposed to potential sale.