Group to purchase insolvent Refco
NEW YORK—
It took just eight days for Refco Inc. to go from up- and- comer to down- and- out, with a midnight bankruptcyprotection announcement capping off the commodities broker’s stunning collapse. A consortium of private buyout firms tentatively agreed late Monday to purchase Refco’s commodities trading subsidiary for $768 million ( U. S.), salvaging one of the few solvent divisions in the company. Refco and 23 of its subsidiaries then filed for Chapter 11 protection in U. S. Bankruptcy Court in Manhattan. The purchase agreement was worth about $ 903.9 million ( Canadian) at yesterday’s exchange rate. The private investors, led by J. C. Flowers & Co. LLP, said they hope to rescue all of Refco, which tumbled ignominiously into turmoil after the company alleged Oct. 10 that former chief executive Phillip Bennett hid $430 million ( U. S.) in bad debt from regulators and shareholders.
“ We’re very keenly interested to see if we can resuscitate all of Refco’s businesses,” J. C. Flowers chairman Christopher Flowers told the CNBC cable network yesterday. “We don’t think this is risky. We think this is going to work out fine.’’
Refco shareholders are probably less optimistic. After being delisted Friday from the New York Stock Exchange, shares of Refco were trading at $ 1.15 each on the “ Pink Sheets” electronic bulletin board. That was a 96 per cent tumble from the closing price on Oct. 7, the last trading day before the accounting scandal came to light.
Since then, Bennett has been arrested on federal securities fraud charges, and customers abandoned Refco in droves, precipitating a cash crunch that led to the bankruptcy protection filing. Customer assets in Refco’s unregulated offshore broker/ dealer remain frozen until next week, and Refco Securities LLC, a regulated brokerage, continued to liquidate its holdings to free up cash.
Credit-rating service Standard & Poor’s yesterday lowered Refco’s bond ratings to D, meaning that the bonds are in payment default. Now it’s up to Christopher Flowers, head of J. C. Flowers and a former Goldman Sachs Group Inc. managing director, and new Refco chairman Mark Winkelman, another Goldman alumnus, to attempt a turnaround at the largest independent commodities trader in the United States.
Meanwhile, competitors are trying to lure more of the company’s customers.
“ Indeed, some of the customers have decided to withdraw their funds, not unreasonably so,” Winkelman told CNBC, “ but the presence of our capital and our management skill and our intention to continue with the business moving forward will stem that flow fairly soon, if not immediately.’’ The Flowers- led consortium includes Enstar Group Inc., Silver Point Capital and MatlinPatterson Global Advisers LLC.