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.