Another blow for Credit Sail investors

Investors in the troubled listed bond issuer Credit Sail have had the value of the $91.5 million investment cut by more than 70 per cent after a fifth bank defaulted on its loan.

Credit Sail said in a statement to the stock exchange that the default would wipe $65.1 million off the value of the bonds held by nearly 1600 New Zealand investors, reducing the portolio's value to $26.4 million.

The bonds in the collateralised debt investment structure mature on December 26 2012.

In November the Cayman Islands-registered company cancelled all future interest payments after its reserves had fallen to below 1 per cent of the principal, triggering a ``strategic unwind'' of the portfolio.

That event was triggered by the collapse of four foreign banks that Credit Sail was exposed to.

Under the collateralised debt investment structure, Credit Sail's New Zealand investors were protected from the first four defaults in the portfolio  Lehman Brothers, Washington Mutual and two Icelandic banks Landsbanki Islands and Glitnir Bank.

A third Iceland bank, Kaupthing Bank defaulted on October 9 owing $128.2 million.

The New Zealand investors' share of that default was $65.1 million.

The Kaupthing default was foreshadowed by ratings agency Standard & Poor's on November 5 when it downgraded Credit Sail from BBB minus to CCC minus, just one step from default.

Any further bank failures in the portolio would increase the losses to investors.

- © Fairfax NZ News