Oct. 31 (Bloomberg) -- MF Global Holdings Ltd., the holding
company for the broker-dealer run by former New Jersey governor
and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for
bankruptcy protection as it seeks to reorganize after making
bets on European sovereign debt.
The New York-based firm listed debt of $39.7 billion and
assets of $41 billion in Chapter 11 papers filed today in U.S.
Bankruptcy Court in Manhattan, making it the eighth-largest U.S.
bankruptcy by assets, according to bankruptcydata.com. MF
Global's board met through the weekend in New York to consider
options including a sale to avert failure, according to a person
with direct knowledge of the situation.
'They were trying to get a deal but at the end of the day
the majority of their business is built on trust,' Scott Peltz,
the national leader of RSM McGladrey's Financial Advisory
Services Group in Chicago, said today in an interview. 'They
had a huge position in European debt, which led to a lot of the
troubles. There will be questions about that.'
Corzine, 64, who helped run Goldman Sachs from 1994 to
1999, sought to transform MF Global into a midsize investment
bank after arriving there in March 2010. He increased the firm's
risk and used its own money to trade, including investments in
European sovereign debt that rattled markets.
European Debt
MF Global owns $6.3 billion of Italian, Spanish, Belgian,
Portuguese and Irish debt, the company said in an Oct. 25
presentation. Concerns that it might lose money on the holdings
amid Europe's debt crisis led to demands from regulators to
boost capital, credit downgrades, margin calls and bankruptcy,
MF Global President Bradley Abelow said.
MF Global aims to complete 'a successful, rapid
reorganization' of its finances in court, while maintaining a
'business-as-usual atmosphere,' Abelow said in an affidavit.
The company's regulated U.S. broker-dealer unit, MF Global Inc.,
didn't file for bankruptcy.
The firm has drawn almost all of a $1.2 billion credit line
that was amended last year to give it more liquidity, Abelow
said. The broker-dealer unit has borrowed about $210 million of
a $300 million secured credit line, he said. JPMorgan Chase &
Co. is the agent for the two credit lines.
MF Global's finance unit, MF Global Finance USA Inc., also
filed for bankruptcy, listing debt of as much as $50 million and
assets of as much as $500 million. The holding company asked the
bankruptcy court for permission to continue intercompany
transactions between its bankrupt businesses and non-bankrupt
units, allowing MF Global to maintain its deposits, investments
and bank accounts.
'Protect Assets'
'The boards of directors of both entities authorized the
filing of the Chapter 11 petition in order to protect their
assets,' the companies said today in a statement. MF Global
U.K. Ltd. separately entered administration in Britain with
administrators appointed from KPMG LLP, the Financial Services
Authority said.
MF Global reported a $191.6 million quarterly loss on Oct.
25 and Moody's Investors Service and Fitch Ratings cut its
credit rankings to junk. Before the bankruptcy filing, MF Global
was suspended today from doing new business with the New York
Federal Reserve, according to a statement on the regulator's
website, and trading in the stock was halted.
MF Global declined 67 percent last week and its bonds
started trading at distressed levels amid its disclosures of
bets on European sovereign-debt. MF Global held talks with five
potential buyers for all or parts of the company, including
banks, private-equity firms and brokers, said the person, who
asked not to be identified because the talks were private.
Evercore Advice
The firm was getting advice from Evercore Partners Inc. as
it sought buyers. Skadden, Arps, Slate Meagher & Flom LLP is
representing the company as bankruptcy counsel. The case was
initially assigned to U.S. Bankruptcy Judge Stuart Bernstein and
later transferred to Judge Martin Glenn, who handled Borders
Group Inc.'s bankruptcy.
MF Global, based in the U.S. with offices in at least seven
other countries, has about 2,870 employees, with 13 employed by
bankrupt units in the U.S. Revenue was $2.2 billion in fiscal
2011, with a net loss for the parent of $81.2 million.
The broker of commodities, derivatives, equity and foreign
exchange had $7.2 billion of customer funds in segregated
accounts as of Aug. 31, according to the Commodity Futures
Trading Commission. It was one of 22 primary dealers authorized
to trade U.S. government securities with the New York Fed and is
a member of more than 70 financial exchanges, according to its
website.
Unsecured Creditors
A list of unsecured creditors filed by MF Global includes
JPMorgan Chase, as trustee for holders of $1.2 billion in debt,
and Deutsche Bank AG, as trustee for holders of more than $1
billion in notes due in 2016 and 2018.
JPMorgan itself holds less than $80 million of the debt,
said Joseph Evangelisti, a spokesman for the New York-based
bank. JPMorgan also has $26 million in collateral belonging to
MF Global that 'may be subject to liens in favor' of the bank,
MF Global said.
Armin Niedermeier, a spokesman for Frankfurt-based Deutsche
Bank, declined to comment. Other unsecured creditors include
Headstrong Services LLC, owed $3.9 million; CNBC, owed $845,397;
and law firm Sullivan & Cromwell LLP, owed $596,939.
MF Global asked for a Jan. 30 deadline to file its full
list of debts and assets, seeking a 75-day extension of the
usual two-week window given under bankruptcy law. The company
'is one of the largest brokers in markets for commodities and
listed derivatives,' making it large and complex enough to
require more time, MF Global said in court papers.
Notes Decline
MF Global's 6.25 percent notes due 2016, which traded at 43
cents on the dollar earlier today, fell to 35 cents after the
bankruptcy filing, according to Trace, the bond-price reporting
system of the Financial Industry Regulatory Authority. The bonds
traded as high as 104 cents as of Sept. 7.
MF Global's largest common shareholders as of Sept. 30 were
Pyramis Global Advisors LLC, with 8.4 percent, and RS
Investments in San Francisco, with 7.8 percent, according to
court papers. RS has sold its entire stake, Erin Burke, a
spokeswoman for the firm, said in an e-mail.
Fine Capital Partners LP held 7.4 percent and Cadian
Capital Management LLC had 6.2 percent, the company said. J.C.
Flowers & Co. owns 1.5 million preferred shares, MF Global said.
MF Global, formerly part of Man Group Plc, has its roots in
a sugar brokerage founded by James Man in England in 1793. MF
Global became a public company in a 2007 spinoff. It was built
up before the spinoff by acquiring the assets of bankrupt
brokerage Refco Inc. in 2005.
SIPC 'Aware'
Generally, broker-dealers aren't eligible to file for
Chapter 11 bankruptcy, and need to either sell assets, as Bear
Stearns Cos. did in 2008 to JPMorgan, or liquidate, as did
Lehman Brothers Holdings Inc.'s brokerage unit and Bernard
Madoff's firm.
Liquidations are overseen by the Securities Investor
Protection Corp. so as to return or replace customer securities.
SIPC, created under the Securities Investor Protection Act,
insures losses of as much as $500,000 a customer in registered
securities.
'SIPC is aware of the situation and is in contact with
the' U.S. Securities and Exchange Commission, Ailis Aaron Wolf,
a spokeswoman for the SIPC, said today in a phone interview. She
declined to comment on whether the agency would oversee the
unwinding of the brokerage unit, saying there wasn't enough
information at this time.
Buyers Sought
Corzine reached out to Goldman Sachs about selling all or
part of the company, according to two people with knowledge of
the firm's deliberations. Macquarie Group Ltd. examined MF
Global's books, according to a person with knowledge of the
situation. Paula Chirhart, a spokeswoman for Macquarie in New
York, declined to comment.
Barclays Plc was among banks that looked at MF Global,
another person said. Kerrie Cohen, a bank spokeswoman in New
York, declined to comment.
State Street Corp., which was also reported to be a
potential bidder, doesn't comment on rumors, Hannah Grove, a
spokeswoman for the Boston-based firm, said in an e-mail.
'We're investing in the future of this business,' Corzine
said in a May statement that announced new hires in its
commodities and derivatives areas. In August, the company sold
$325 million in senior unsecured notes to repay part of the $1.2
billion revolving credit facility, according to company
statements.
Capital Increase
MF Global increased net capital at the U.S. unit after
Finra raised concern about the risks to its European debt
portfolio, it said in September.
'We are confident that we have the resources, capital,
liquidity and expertise to successfully manage our European
exposures to their end date maturity of December 2012,' Diana
DeSocio, a spokeswoman for the broker, said in an Oct. 24
statement.
The case is MF Global Holdings Ltd., 11-bk-15059, U.S.
Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story:
Tiffany Kary in New York at
tkary@bloomberg.net ;
David McLaughlin in New York at
dmclaughlin9@bloomberg.net ;
Linda Sandler in New York at
lsandler@bloomberg.net
To contact the editor responsible for this story:
Stephen Farr at
sfarr@bloomberg.net
