MF Global UK Limited (in special administration) Updated Illustrative Financial Outcome as at 31 December February 2013

Transcription

1 MF Global UK Limited (in special administration) Updated Illustrative Financial Outcome as at 31 December February 2013

2 Important notice This Document has been prepared by Richard Heis, Michael Pink and Richard Fleming, the JSA s of MFGlobal UK Limited (the JSAs and MFGUK or the Company, respectively), solely to present an update to the creditors and clients of MFGUK of the Illustrative Financial Outcome for Creditors and Clients of MFGUK using information available as at 31 December Similar to the document published on 7 January 2013 ( Illustrative Effect of Conditional US Settlements ), this document has been prepared on the basis that the Conditional US Settlements (as described in that document) become unconditional. This Document has been prepared in good faith, however no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the Company, the JSAs or any of their respective representatives or advisers in respect of the truth, accuracy or completeness of the information provided in this Document and such persons will not be liable to the recipients in respect of the information provided in this Document or its use. In particular, but without prejudice to the generality of the foregoing, no representation or warranty is given as to the achievement or reasonableness of any future projections, prospects or returns (including any estimated outcomes for clients, the unsecured creditors or shareholders) contained in this Document. Any estimated outcome for the clients, unsecured creditors or shareholders included in this Document (or commentary thereon) is illustrative only and cannot be relied upon as guidance as to the actual outcomes for the clients, unsecured creditors or shareholders. Any person, creditor or client that chooses to rely on this Document for any purpose or in any context other than those stated, does so at its own risk. Neither the Company, JSA s, nor any of their respective representatives or advisers accepts any responsibility for any acts or omissions as a result of the information contained within this Document and all liability for damages arising from the information provided is expressly excluded. The JSAs give no undertaking to provide the recipient with access to any additional information or to update this Document, or to correct any inaccuracies in it which may become apparent. This Document has not been prepared in contemplation of it being used, and is not suitable to be used, to inform any investment decision in relation to the debt of, or any financial interest in, the Company or other companies in the same group. Nothing in this Document constitutes a valuation or legal advice. Where legal issues are discussed, the information is only intended to be of a general nature and not a full review of the issues covered. Michael Pink and Richard Heis are authorised to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. Richard Fleming is authorised to act as an insolvency practitioner by the Insolvency Practitioners Association. The JSAs act at all times as agents for the Company and without personal liability. The appointments of the JSAs are personal to them and, to the fullest extent permitted by law, KPMG LLP does not assume any responsibility and will not accept any liability to any person in respect of this Document or the conduct of the administration. 1

3 Glossary of terms 30.7 CFTC regulation 30.7 ATT Absolute title transfer Chapter 11 Trustee Louis Freeh as trustee in bankruptcy of MF Global Holdings Ltd in Chapter 11 Client Money Pool Segregated client monies, together with those client monies that ought to have been segregated as at 31 October 2011 CFTC Conditional US Settlements US Commodities Futures Trading Commission Settlement agreements signed between MFGUK and the Chapter 11 Trustee and MFGUK and the SIPA Trustee on 22 December Distribution Plan Special Administrators client asset distribution plan approved by the High Court on 19 July House Estate JSAs Finco MFGI MFGH MFGUK/the Company RTM SIPA Trustee Non-segregated creditor and estate assets Richard Heis, Michael Pink and Richard Fleming as Joint Special Administrators of MF Global UK Limited (in special administration) MF Global Finance USA Inc MF Global Inc. MF Global Holdings Ltd MF Global UK Limited (in special administration) Repo to maturity James W. Giddens as SIPA trustee of MFGI in SIPA liquidation 2

4 Contents Page Summary of model & distributions 4 Summary of illustrative financial outcome combined estate Summary of illustrative financial outcome Client Money Pool Summary of illustrative financial outcome House Estate Summary of illustrative funds available for distribution to House Estate

5 Summary of model & distributions

6 Illustrative Financial Outcome Summary of model and distributions Summary of model The tables on the following pages provide an updated summary of the illustrative financial outcome as at 31 December 2012 assuming the Conditional US Settlements become unconditional. Based on current information, and subject to the various material cautions and caveats set out in this document, the illustrative range of financial outcomes suggests that available funds eventually could amount to between some $3.06 billion and some $3.17 billion and total client money and unsecured claims could be between some $3.08 billion and some $3.21 billion. It should be noted that the illustrative range of financial outcomes presented includes a low (i.e. more prudent) case estimate and a high (i.e. less prudent) case. These should not be considered best and worst possible cases. This represents a narrowing of the range from the amounts previously reported, primarily as a result of a reduction in the low case estimate of liabilities, offset to a certain extent by an increase in the high case estimate of liabilities. In the Special Administrators Progress Report for the 6 month period 31 October 2011 to 30 April 2012 (the 6 Month Report ), the JSAs commented that there are two particularly significant issues that are likely to have a significant impact on the timing and value of the eventual recovery that creditors will make: Resolution of matters involving the respective estates of MFGI, Finco, MFGH and MFGUK, the most significant of which relates to the treatment of losses on the RTM portfolio between MFGUK and MFGI. The Conditional US Settlements entered into on 22 December 2012 will resolve these issues if they become unconditional; and Continued efforts to facilitate the recovery of House Estate assets, the majority of which are held at a small number of financial institutions. The Conditional US Settlements will have the effect of returning $98million to the MFGUK estate, and we would expect will assist in the collection of other balances. Since 30 September 2012, the JSAs have continued to make progress in the recovery of House Estate assets, with $91 million collected by the JSAs since that date. The JSAs have also sought to break down the illustrative financial outcome into separate parts representing the House Estate and the Client Money Pool respectively. The component parts need to be considered in the context of considerable legal uncertainties that could impact the ultimate outcomes for individual creditors and clients, which inevitably have contributed to the high/low range estimate being quite wide. These include: The impact of the Supreme Court Ruling in LBIE v CRC Credit Fund Limited & Others (which has created uncertainty as to what money is to be treated as being part of the Client Money Pool and the House Estate); The Hindsight judgment that was handed down on 29 January 2013 clarified the basis of the valuation of individual clients claims against the Client Money Pool. However, this results in a potential consequential uncertainty over the treatment of shortfall claims from the Client Money Pool into the House Estate; and Uncertainty as to the effect of transfers of open positions post-administration (e.g. in the circumstance where such a transfer resulted in value/margin leaving the estate, whether this should be considered a distribution or a reduction in value of claim). 5

7 Illustrative Financial Outcome Summary of model and distributions Estimated distribution percentages The JSAs have previously provided an outline of the key factors impacting the timing and quantum of subsequent distributions from the Client Money Pool and an interim dividend from the House Estate. The JSAs also previously provided estimated interim distribution percentages for both Client Money claimants (60 in the $) and General Estate creditors (20p in the ). Based on developments set out in the following pages (most notably the progress made by the JSAs in reaching consensual solutions to categorisation disputes), the JSAs now estimate that the following will be achievable should they be declared: First interim dividend on the General Estate 40p in the Second interim distribution from the Client Money Pool 60 in the $ (ie an incremental 34 in the $) Note that estimated distribution percentages on both the Client Money Pool and the General Estate are indicative only and may need to be revised based on circumstances prevailing at the time they are declared. The timing of the above distributions is dependent on the achievement of the remaining two conditions required to make the US Conditional Settlements unconditional. To date, one of the three conditions has been met, namely the approval by the US Bankruptcy Court of the Conditional US Settlements on 31 January

8 Summary of illustrative financial outcome

9 Illustrative Financial Outcome Summary of illustrative financial outcome combined estate Illustrative financial outcome (including comparison to that previously reported) Combined house and client estate Post-US Settlement As at 30 September 2012 Post-US Settlement As at 31 December 2012 Low ($m) High ($m) Low ($m) High ($m) Narrative Amount currently under the control of the 2,315 2,315 2,406 2,406 administrators Amounts receivable from financial institution Amounts collected by virtue of set-off Projected future recoveries Affiliates Third party receivables Total future projected recoveries Priority claimants/costs of the administration Contingency for costs (123) (103) (96) (76) Specific contingency (63) (63) (63) (63) Total priority claims (186) (166) (159) (139) Funds available for creditors and clients 3,060 3,188 3,064 3,174 Creditor and client liabilities Creditor and client liabilities (2,728) (2,432) (2,632) (2,497) 3 Amount satisfied by virtue of set off (385) (385) (385) (385) Amount satisfied by settlement of Accepted (197) (197) (197) (197) Client Asset Claim Total creditor and client claims (3,310) (3,014) (3,212) (3,079) Illustrative financial outcome (shortfall)/surplus to creditors and clients (250) 174 (149) 95 Narrative 1. A condition of the Conditional US Settlement Agreement with MFGI is that amounts receivable from one financial institution are paid in full to MFGUK. These are estimated to be in the region of $98 million. 2. The value available for set-off is contingent on proceeds from the sale of approximately $68 million of securities held by MFGI, although if the actual proceeds have a different value, this will have no effect on the bottom line as the claim will also change. Amounts due from MFGI as agreed with MFGI have been reclassified into Amounts collected by virtue of set-off. An offsetting adjustment is made to liabilities of the estate 3. The key reason for the reduction in the low case liability balance is the progress made by the JSAs towards the the agreement of creditor balances. As the JSAs have obtained further clarity over disputed creditor balances and have obtained more clarity over the effect of transfers on creditor balances as well as the outcome of the Hindsight judgement, the high case liability balance has increased. Note: 1. This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should be placed on the values contained within the summary or the illustrative financial outcome to creditors. 2. To the extent surplus is available in the estate after payment of all creditors, this may go toward statutory interest on the unsecured debt or towards any subordinated debt. The JSAs have chosen not to include these costs at this stage and express no view on what entitlement any party would have to the money. 8

10 Illustrative Financial Outcome Summary of illustrative financial outcome Client Money Pool Illustrative financial outcome (including comparison to that previously reported) Post-US Settlement As at 30 September 2012 Post-US Settlement As at 31 December 2012 Low ($m) High ($m) Low ($m) High ($m) Narrative Client estate Amount currently under the control of the administrators Transfer from house estate Projected future recoveries Affiliates Third party receivables Total future projected recoveries Priority claimants/costs of the administration Contingency for costs (100) (83) (97) (90) 2 Total costs of the administration (100) (83) (97) (90) Funds available for clients Client liabilities Client liabilities according to the MFGUK books and records (1,066) (1,066) (1,106) (1,062) 3 Clients that ought to have been segregated (20) (20) (45) (45) 4 Disputed claims third parties (631) (364) 4 Disputed claims MFGI Total client claims (1,717) (1,086) (1,515) (1,107) Illustrative financial outcome to clients before any recovery of shortfall from house estate (770) (122) (570) (156) Narrative 1. Amounts collected by virtue of set-off attributable to the Client Money Pool. 2. This represents an estimate of the allocation of costs between the Client Money Pool and the General Estate. The basis of allocation of costs between the respective estates will be subject to review by the Creditors Committee. 3. The key difference between the low and high case client liabilities is the existence of certain claims that are not recognised by MFGUK. These had previously not been included in the low case range of client liabilities. The JSAs continue to work towards the agreement/rejection of all liability balances. 4. The movements in these balances reflect the progress made by the JSAs in reaching consensual agreement over the status of claims as either segregated or nonsegregated. 5. Disputed 30.7 and $175 million wire transfer client money claims submitted by MFGI are withdrawn as claims against the Client Money Pool. Note: 1. This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should be placed on the values contained within the summary or the illustrative financial outcome to creditors. 9

11 Illustrative Financial Outcome Summary of illustrative financial outcome House Estate Illustrative financial outcome (including comparison to that previously reported) Post-US Settlement As at 30 September 2012 Post-US Settlement As at 31 December 2012 Low ($m) High ($m) Low ($m) High ($m) Narrative House estate Amount currently under the control of the administrators 1,397 1,397 1,491 1,491 Amounts collected by virtue of set-off Amounts receivable from financial institution Transfer to client money pool (77) (77) (77) (77) (see page 9) Projected future recoveries Affiliates Third party receivables Total future projected recoveries Priority claimants/costs of the administration Contingency for costs (123) (103) (96) (76) Costs allocated to Client Money Pool (see page 9) Specific contingency (63) (63) (63) (63) Total priority claims (86) (83) (62) (49) Funds available for creditors 2,113 2,224 2,119 2,222 Creditor liabilities Creditor liabilities as per the MFGUK books (1,662) (1,366) (1,525) (1,435) Amount settled by way of client asset claim (197) (197) (197) (197) Amount settled by virtue of set off (385) (385) (385) (385) Less: Ought to have been segregated Less: disputed claims (assumed in Client Money Pool) Shortfall from Client Money Pool (770) (122) (570) (156) 4 Total creditor claims (2,363) (2,050) (2,268) (2,128) Illustrative financial outcome to creditors (250) 174 (149) 95 Narrative 1. The value available for set off is contingent on actual proceeds received from the sale of $68 million of securities held by MFGI. 2. A condition of the Conditional US Settlement Agreement with MFGI is that amounts receivable from one financial institution are paid in full to MFGUK. These are estimated to be in the region of $98 million. 3. All disputed claims have been added back in this version of the illustrative outcome as they have been treated as proper claims in the low case in the Client Money Pool and therefore are reflected in the shortfall which is carried forward into the House Estate. 4. Reduced shortfall by virtue of the progress made by the JSAs in reaching consensual agreement over the status of claims as either segregated or nonsegregated. Note: 1. This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should be placed on the values contained within the summary or the illustrative financial outcome to creditors. 2. To the extent surplus is available in the estate after payment of all creditors, this may go toward statutory interest on the unsecured debt or the payment of any subordinated debt. The JSAs have chosen not to include these costs at this stage and express no view on what entitlement any party would have to the money. 3. Balances have been presented above in USD for ease of aggregation of the overall estate position. In reality all foreign currency liabilities are translated into GBP at the time of appointment of the JSAs. 10

12 Summary of illustrative funds available for distribution to House Estate

13 Illustrative Financial Outcome Summary of illustrative funds available for distribution House Estate The summary table below should be read in conjunction with the underlying assumptions and the narrative detailed on the following page. House Estate interim distribution calculation As at 30 September 2012 Post settlement $m As at 31 December 2012 Post settlement $m Amount currently under the control of the administrators 1,397 1,491 Amount receivable from financial institution Amount transferred to Client Money Pool (77) (77) Provision for future costs (23) - Provision for specific contingency (60) (60) Specific contingency MFGI Accepted Client Asset (197) (197) Specific contingency MFGH costs (3) (3) Total potential cash available for distribution 1,135 1,252 Required reserves (trust type claims) Reserve for Finco - - Reserve for MFGI 30.7 claim - - Reserve for assets that could be potentially traced relating to disputed claims (651) (409) Total required reserves (651) (409) Funds available for distribution to creditors Note: 1. This illustrative financial outcome is for illustrative purposes only and is based on the information available to the JSAs at the time of disclosure. No reliance should be placed on the values contained within the summary or the illustrative financial outcome to creditors. 2. The quantum of distributions ultimately declared will be determined by the level of available funds and client and creditor claims at the point of declaration of those distributions having taken account of any contingencies that the JSAs consider appropriate to be reserved for on a prudent basis. 12

14 Illustrative Financial Outcome Detailed assumptions and narrative Detailed assumptions and narrative 1. To date all costs have been paid out of realisations in the House Estate. A significant proportion of these costs will be recovered by reimbursement from the Client Money Pool and client asset claimants. As a result, the future costs to be allocated to the House Estate are considerably lower than those to be incurred by the Client Money Pool. An estimate has been made in this Illustrative Financial Outcome to reflect the allocation of costs between the Client Money Pool and the General Estate. The basis of allocation of costs between the respective estates will be subject to review by the Creditors Committee. 2. No assumption has been made regarding asset tracing in either scenario. 3. The ultimate return for an individual creditor will be dependent on a number of factors including the treatment of the shortfall claim and the effect of transfers. 13

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