A group of international banks including US group Goldman Sachs may step in to rescue International Securities Trading Corporation (ISTC), the Dublin-based finance house facing collapse with debts of €871 million. Simon Carswelland Mary Carolanreport.
ISTC yesterday sought the protection of the courts to avoid bankruptcy after a demand for repayment of a €176,250 debt by a German bank threatened to bring it down.
The group, which raises money on the global capital markets to lend to other financial institutions, successfully petitioned the High Court yesterday to appoint an interim examiner to protect the firm from its creditors. It made the application six days after German bank Dresdner Kleinwort gave it 21 days to repay a €176,250 debt.
Its problems stem from the recent downgrading in the value of some of its investments due to the turmoil in the world markets. As a result ISTC could not meet its debt repayments. This in turn led to further demands, leaving ISTC facing bankruptcy.
A number of investment banks, including Goldman Sachs are interested in investing in ISTC and have received information from ISTC's UK financial advisers. Hedge fund Silverpoint Capital is also interested, while another hedge fund, Avenue Capital, is considering an investment.
The firm, which was established in 2005 by former Anglo Irish Bank executive Tiernan O'Mahony, raised €165 million from about 200 investors, including some of the country's best known business people, shortly after it was set up. Shareholders include entrepreneurs Denis O'Brien and Seán Quinn, Smurfit Kappa chief executive Gary McGann and a large number of wealthy property developers.
Appointing the interim examiner yesterday, Mr Justice Peter Kelly said ISTC was a victim of the volatility in the financial markets in recent times. The court was told ISTC was insolvent. The alternative to examinership would be liquidation and a "fire sale" of ISTC's assets leaving an estimated shortfall of €871 million, the court heard yesterday. Some of the world's leading investment banks, including Merrill Lynch, Morgan Stanley and Deutsche Bank, provided loans to ISTC. Mr Justice Kelly said ISTC's creditors were "a veritable who's who of the banking world on an international scale".
The interim examiner, Dublin accountant John McStay, will try to seek an investor to ensure the survival of the business and to convince the company's creditor lenders not to engage in a fire sale of ISTC assets which they hold as collateral against their loans.
An independent accountant had prepared a report suggesting that if certain conditions were met, the company or part of it had a reasonable prospect of survival. This was conditional on secured creditors agreeing to continue trading with ISTC; the firm being able to cap its exposure to collateral calls and to seek new funding; and the approval of an appropriate scheme of arrangement with creditors.
A fire sale of ISTC's assets in the current depressed financial markets would mean that any losses incurred by its lenders would be passed on to the Dublin company.
"Such a forced asset sale would ensure substantial value destruction for all creditors and shareholders," ISTC said in a statement yesterday. "Clearly, it is not in the best interests of any creditor to sell assets in such depressed market conditions."
ISTC had traded profitably until the credit crunch, which was caused by the US subprime mortgage crisis.