Martin Lee @ Sg
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Jubilee Series 3 Liquidation Value

I just received a note from Jubilee Finance and Merrill Lynch with the calculation of the final liquidation value of the Jubilee Series 3.

Jubilee Series 3 Notice to Investors

First of all, how it works is that in the case of any default, you (the noteholder), will give up the underlying security of your Jubilee Notes and take over the bonds of the default entity.

The bonds of the default entity (in this case Lehman Brothers), will be sold.

These were sold for about $4.7 million, representing 18% of the original value of the notes. 

There is also a need to deduct any costs involved in unwinding all the swap positions. This works could to be $2.6 million.

The last adjustment that needs to be made is in the value of the underlying securities. Any drop or gain in the value of the underlying securities will have to be offset against the proceeds. 

In this case, the underlying securities had a market value of only $5.4 million out of the original principal of $26.3 million. This means a markdown of almost $20.9 million.

4.7 – 2.6 – 20.9 = -18.8 million

Jubilee Series 3 noteholders will therefore get back nothing.

This looks like a worse deal than just holding the Lehman bonds directly. Bond holders were getting a coupon of 5.625% and when Lehman defaulted, they could still get back 18% of their capital.

Jubilee noteholders had to undertake a lot more risks and were not being paid a lot more than pure bond holders.

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47 comments
angela says 10 years ago

Hi lionvestor

Then what is the differences between minibonds an jubilee notes as a result of Lehman’s default apart from the fact that in minibonds Lehman is the swap counterparty and in jubilee notes it is one of the reference entity? Thanks

Reply
    lioninvestor says 10 years ago

    Hi Angela,

    For Jubilee, as there is a default of the reference entity, Jubilee holders are supposed to get back an amount based on the recovery value of Lehman bonds, marked down by the drop in the underlying securities of Jubilee notes.

    The total calculation (as shown in my post above) works out to be zero.

    For Lehman Minibonds, as there is no default of any reference entity yet, there is no trigger for any unwinding of the notes.

    However, as the swap counterparty has gone bust, the entire structure is thus frozen. In the event of liquidation, noteholders might have a claim on the underlying securities.

    Reply
angela says 10 years ago

do the bondholders have claims on the collateral securities?

Reply
    lioninvestor says 10 years ago

    Hi Angela,

    Jubilee 3 holders (they are not bondholders btw) only have a claim after the deduction, which is essentially nothing.

    Or are you refering to Lehman bondholders?

    Reply
Tonga says 10 years ago

Looks like 10,000 minibonds/structured investors plus 700 pinnacle 9 & 10 Series Notes the latest victims!
All 17,000 got bombed and now in limbo……..back to GROUND ZERO. O$L$………..owe money, lose money! from the FI side affected

Reply
fish says 10 years ago

I just saw from http://www.blogger.com that Jubilee investors are forming mailing group to update on another. Maybe all the Jubilee series 3 investors should update also. Pls take a look….https://www.blogger.com/comment.g?blogID=4760992810286626303&postID=8057228219985122301

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tembusu says 10 years ago

Spoke to the distributor whom I bought the Jubilee 3 from. He suggested that take up the interview and voice out my unhappiness.
There has been very little publicity on the Jubilee 3 because there has not been much concerted effort to bring this product to the attention of the authorities.
If all of us can come together and attend the interview that has been set up by MAS, there might be some hope that the authorities can look into this failed product and something might be done about it.

Reply
VerySian says 10 years ago

Hi LionInvestor,

I bought from UOB Kay Hian. They told me yesterday no quote from Morgan Stanley “due to the extreme volatile condition”. It’s been like that for the last 3 weeks. the last price they quoted was about $0.30, I’m afraid it’s zero or close to zero now. I’m loss and don’t know what to do.

Reply
    lioninvestor says 10 years ago

    That might be possible. Morgan Stanley are not obligated to provide weekly quotes.

    Do you have the pricing statement or prospectus?

    Reply
    QQ Brother says 10 years ago

    Do you know which series you bought? Better read the prospectus in more detail and try to sell when you still can.

    Reply
Very Sian says 10 years ago

Enough of these craps from MAS. Push here and there, round and round. To me, this is a scam out to cheat stupid people like us. If lawyers don’t even understand the prospectus, how can we? We are also not scholar caliber.
Today i asked for the price of Pinnacle notes from the FI, also no one can tell me, just said market is very bad, huge volatility, cannot get a price and all the crap but never answer my question on how i can sell them at how much. I’m really mad. LionInvestor, can u help me plse?
Never imagine a “sound” investment in the brochure can bring so many sleepless nights. What is the government doing…. everyone responsible is avoiding us as if we got cancer. If the government don’t step in, i’m sure more will go burst in no time. Yes, the case will be “settled” in no time, but the scar will be carried over a long time, election time included. This saga had tarnish the image of s’pore, a country that many perceived to be “safe” in every aspect and a good government. I had calm down over the last week but when i saw the emotions on saturday, people crying, my heart aches and my curses comes out again. I’m sorry i lost control again. What is becoming of this world that we are living in? Why has our government turned so cold, not the pap that i know in my younger days?

Reply
    lioninvestor says 10 years ago

    Hi Very Sian,

    who is the distributor you bought the Pinnacle from?

    Ask them for the latest pricing from the Issuer.

    Reply
ME says 10 years ago

It’s hard for the government to take action because this will only encourage people to invest recklessly in future. You could just cry, threaten to commit suicide, sign petitions, then get your money back. It just doesn’t make sense to me. All terms and conditions were stated in the prospectus. It is the responsibility of the investor to read through carefully before investing. Pushing the blames to the financial institutions is not right. Investors want high yield, no risk. Where to find?

They just have to accept the loss.

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salvos says 10 years ago

When I was told capital protected about a fund which I bought from a bank and then explained months later that it did not apply if any company in the fuind defaulted,it immediately occured that this was white collar deceit.The correct sales pitch could be “capital not protected”.
It not only hurts that a consumer lose money but made a sucker as well.

Reply
    lioninvestor says 10 years ago

    Yes, you have to take the terms “capital protected” and “capital guaranteed” with a pinch of salt nowadays because you have so many fine print underneath.

    Reply
CB says 10 years ago

This is really a scam, why is this allowed in S’pore??? This is more Toxic than the China milk, there will be more to come if this is being set as precedence.

Reply
    Kenneth says 10 years ago

    Yes precisely. China Milk still got hope to cure. This one, need to beg the Govt for a cure.

    -Govt push to MAS.
    -MAS push to HSBC.
    -HSBC says no medicine unless interest default then follows by 15 days wait. Then go law-by-law and liquidate with $0 return.
    -MAS says also can go to FI to complaint
    – FI act blur and have to go FIDeC
    – FIDeC says only come when you not happy with FI reply. But must wait for 6-8 weeks before official meet you.

    Petition is the fastest. 17 sign for petition to PM and end up meeting MAS. 983 petition hand in on Wed but still must pass to MAS.

    What will happen tomorrow on “seeking govt help” petition? Don’t know, likely repeat the above. HAND OVER TO MAS.

    It is like

    Try, try, never say died. Until you cannot take it then go and die.

    Sign…..

    Reply
Kenneth says 10 years ago

So then what is the crap about HSBC trustees looking for replacement Swap guarantor requested by investors. If cannot find, then liquidate. Liquidate what?

I think this is whole lot of crap from MAS and HSBC. FIs should bear this responsibilities for not telling us the facts in the event of early redemption.

This is going to be hell for those with nothing to lose… Where is Justice, where is the millionaire govt?

I think all of us knew this is coming. This is really a dead deal from the very beginning.

Regards,

Reply
    lioninvestor says 10 years ago

    Hi Kenneth,

    Jubilee 3 is different from Minibond because there was a default in one of the reference entities. When that happens, the notes will be unwound according to what was stated in the prospectus.

    Reply
      Jasmin says 10 years ago

      I did not read much about this Jubilee 3.
      Even if there was a default in ONE of the reference entities and the notes would be unwound, would an investor gets zero?

      I compare this situation with minibonds. Surely I was not told if one of the reference entities default, I would get zero.

      Reply
        QQ Brother says 10 years ago

        I think the was written in the prospectus. Though doubt if anybody will read it in the end. should be more careful next time

        Reply
      Kenneth says 10 years ago

      Hi Lioninvestor,

      Apologise for the emotional outburst but since the start of the saga, it is driving me nuts with govt inaction.

      While I understand Lehman Minibomb Series 3 is not part of the REs, FIs indicate that Lehman bankruptcy is also consider part of the trigger to unwind in the event of interest default. To me, instead of 5 “most unlikely to default” sales pitch i.e. 6 REs and issuer, there is an additonal Swap guarrantor.

      On top of this, early termination does not leads to 0% principal return. Impression was our money is tie with 6 REs bonds.

      Again we are going round and round and returning to the word “painful feeling after CON”. The main issue is still FIs not carrying out their responsibilities professionally by getting their 0 knowledge FAs to sell us very high risk products.

      At least we have a 983 people petitioned for CAD and MAS action on the above. 2 straight days of reporting in Today’s paper. I also can bet with anyone that the MD of MAS will be replace in short term with the reasons given like, retiring, personal reasons, health problems, job rotation etc. Funny thing is why always the soldiers get punish while the Minister, who thought Minibond is bond, continue with his inaction. Maybe this is what you call “talent”, “people touch”, “x-factors”, “different league”.

      Reply
        lioninvestor says 10 years ago

        Yes, there’s a big gap in how the product was explained during the sales process.

        That is why there’s a big mess now

        Reply
FACH says 10 years ago

Hi,

I am very concern abt the ML Jubilee Series 8 notes. Any news ? Is it affected ?

Please advise.

FACH

Reply
what? says 10 years ago

-18.7? That means you will still have to pay.

Reply
    lioninvestor says 10 years ago

    Don’t need to. The loss is capped at the principal put in so it just means a 100% wipeout.

    Reply
Peter W says 10 years ago

The unfairness of it all. All this was never explained by the FIs through their RMs. The public must be educated never to touch any structured deposits. The products are evil and devised to the benefit of the FIs and the issuer only. They may be marketed that principal is protected at maturity, but examine the small print following. Laws must be made to protect the public. After all would anyone knowingly risk all just to have 3 to 5% interest pa.

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Very Sian says 10 years ago

nhyone,

This is a piece of shit news to me and those who are holding this note. It’s a scam and out to cheat retail investors. Why should the lost be offset from the sales proceeds of LB bonds instead of using the balance amount to return to the investors. There still some valure no matter how low it is and it should be return to the investors. What kind of mathematics is this? It should be X +Y and not X – Z ! Y is the balance amt of the underlying securities and Z is the loss after selling the securities. Why should we bear their losses when we already lost some money when the securities are sold off ?
There was no mentioned of the other 6 bonds, they did not bankurpt and should be worth some money?
The way they calculate it is no difference to robbery ! This must be the biggest cheat i have come across in my life.

Reply
    lioninvestor says 10 years ago

    Very Sian,

    Yes, it’s a product that is very unfair for the investors. Let me try to illustrate it.

    Noteholders put up $1million. The money is used to buy securities.

    Issuer buys bonds of $1million of the 6 reference entities (or sells credit default swaps).

    In return for the coupons, noteholders agree to give issuer the $1million of securities should there be any default. Issuer will give the defaulted $1 million bond to noteholders.

    A defaulted bond might be worth only $300,000. The noteholder will get that and hand over $1million in securities.

    The problem now is the writedown of the securities. If the securities are only worth $800,000, then you have to make up for the $200,000 drop. Thus, you only get back $100,000.

    In the Jubilee 3 case, the drop in value of the underlying securities is much higher than the worth of the defaulted bond, thus there is nothing left to take back.

    Unfortunately, all these scenario would have been explained in the prospectus.

    Reply
    tembusu says 10 years ago

    Very Sian,

    I totally agree this is a scam!
    When JB3 was issued there were already problems brewing in the banks, just that it was totally unknown to laymen like ourselves. Maybe there was already some signs that Lehman may even do under?? All these are well covered to us and we unsuspectingly buy into something that offers a reasonable rate of returns.
    What I do not understand is why these notes were only made available in Singapore? I wonder what kind of checks these products may have gone through before they can be sold here? Could they have been rejected by the other countries which is why they were only made available here?

    This is a big lesson learnt for me. Recently my mum bought some JB8 notes and from what I read there is a loss of 13-15% if we unwind now. Should she cut loss and sleep with a peace of mind?
    Her RM has assured her that this product is very safe and since Merill has been acquired by BOA the notes are not in any danger of default. Can anybody advise what is their view on this?

    Reply
nhyone says 10 years ago

Very Sian, all the underlying securities are redeemed. They are worth $5.4mil and are exchanged for the defaulted Lehman Brothers’ bonds, worth $4.7mil.

If the noteholders have to make good the underlying securities, then I have two comments:

1. How can it be possible to get back anything in a credit event?

2. Does this means someone lost $20.8mil?

Reply
    lioninvestor says 10 years ago

    nhyone,

    Yes, in a credit event, there will be a significant loss of capital. In the event where the underlying securities is still at par, then the loss will just be on the drop in the bond value.

    Unfortunately, in scenarios where a big institution fails, usually, there is also a lot of trouble elsewhere, thus the huge drop in value of the underlying securities.

    The loss to the investor is capped at the amount of money he put in. The excess portion which can’t be covered will have to be undertaken by the issuer. It is also possible he might have hedged it away.

    Reply
      QQ Brother says 10 years ago

      The means Jubilee lost more than it should lost? who is paying for the extra loss if Jubilee is only a Shell company

      Reply
Very Sian says 10 years ago

Lion Investor

What about the value of the other 6 bonds? If this note is liquidated, they also must be sold and have some values because they did not bankrupt.

What should i do now? Kindly advise me, sue the FI?

Reply
    lioninvestor says 10 years ago

    The noteholders don’t own the other 6 bonds.

    Look at it this way. The issuer owns (either physically or an obligation in the form of CDS) all the 6 bonds. When one of them defaults, they pass the junk bond to you and takes over the underlying securities from you.

    That’s how the product is structured.

    Reply
    lioninvestor says 10 years ago

    Very Sian,

    If you feel you have been misrepresented when you bought the product, you can proceed to file a dispute.

    http://www.martinlee.sg/how-to-file-a-dispute-for-structured-product-victims/

    Reply
nhyone says 10 years ago

Why is it 4.7 – 2.6 – 20.8 and not just 4.7 – 2.6?

Reply
    lioninvestor says 10 years ago

    nhyone,

    The noteholders have to make up for the writedown of the underlying securities.

    In this case, the underlying securities have dropped by $20.8 million, therefore that amount needs to be deducted from the proceeds.

    Reply
Peter W says 10 years ago

This is terrible. I hope and pray that no one does anything silly.
The FI and Govt. should help to alleviate the sufferings of parents, the old and the illiterate who have lost their life savings. Who will take care of them and their families now? The FIs have to assume responsibility as they have sold the product without highlighting that with such meagre interest one can lose all. The govt. too for allowing the marketing to be carried out. This was the rage then with savings banks, banks and other institutions persuading people to transfer their savings & FDs into SDs, unit trusts and insurance link schemes.
I hope that a big bank like DBS with their hugh profit reserves will be compasssionate and compensate these poor people.
So far it has been heartbreaking to observe a ‘hands off’ and ‘you deserve it’ attitude.

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CB says 10 years ago

The rsik involved was not presented to me, absolutely not when I bought into this product. This is nightmare, I thought it was sfte to park my money there, and it’s supposed to be for my kids’ education.

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chris says 10 years ago

Oh no… I wonder how many bought this note. I hope not to hear any suicide news as in the two cases in US(one killing his family before committing suicide and one old lady killed herself as she was cornered to give up her house).
Money gone can still be earned back for some of us but….for the retirees or illiterates who lost their life savings…sigh…

Reply
    tembusu says 10 years ago

    Hi,

    I am one of the unfortunate holders of the Jubilee 3 notes. Got the official letter telling us we will get ZERO back from this “Investment”

    Should I just sit down and accept the fact that I have lost all my years of savings in this notes, or can anything be done at all?

    I always thought the funds raised are used to loan the 5-6 entities listed, so it comes to me as a total shock that I have lost everything overnight. Please can anybody kindly advise what I can do?

    Reply
      lioninvestor says 10 years ago

      Hi Tembusu,

      If you feel you have been misrepresented on the product, you can file a dispute.

      http://www.martinlee.sg/how-to-file-a-dispute-for-structured-product-victims/

      It’s your only way of recourse at this point in time.

      It will also be good to see what Mr Tan Kin Lian has to say at today’s Hong Lim Park gathering.

      Reply
        tembusu says 10 years ago

        Hi LionInvestor,
        I am not about to take this up with the securities company I bought this from as I was not coerced into buying it from them.
        I am just upset with the Issuer of the Notes and really casting doubts over how the calculation was done to determine the redemption amount.
        I feel this may have not been fairly done to protect note holders like us.

        So can I still lodge a complaint?

        Thanks alot for the very informative website.

        Reply
        lioninvestor says 10 years ago

        Hi Tembusu,

        Unfortunately, the calculation method is clearly spelt out in the prospectus.

        A raw deal, yes – but who is going to take responsibility for that?

        This is a kind of product with a low probability of occurrence but high consequence if it does.

        Something like you providing insurance.

        Reply
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