AbitibiBowater, Inc. (fka ABWTQ)

[Pitt77]

Is what this document could serve as evidence of manipulation??


Strategy cds / ABWTQ
Ban Credit Default Swaps? These Corporate Bankruptcies Show We Should

For frustrated investors looking to justify the ban of credit default swaps (CDS), look no further than last week's corporate bankruptcies of Canadian newsprint producer AbitibiBowater Inc. (ABWTQ) and U.S. shopping center developer General Growth Properties Inc. (GGP).

In both of these cases, credit default swaps became an actual bankruptcy catalyst - for the first time ever.

In the lead-up to both bankruptcies, the lenders who had debt outstanding - who would have the right to vote on any reorganization - had hedged their debt through credit default swaps and so stood to benefit from the company's bankruptcy. That made it very difficult for both companies to get the majorities they needed for debt reorganization, making bankruptcy inevitable.

The CDS holders were in the position of seeing a 1929-vintage stockbroker balanced on a window ledge, and yelling "Jump, jump" - while simultaneously taking bets on the result.

In the AbitibiBowater bankruptcy case, holders of credit default swaps played two key roles:

* They were spectators and potential litigants.
* And they were the generator of lawsuits.

Let's consider the first point.

When AbitibiBowater missed a bond payment on March 20, there were a lot of CDS derivatives outstanding that were close to maturity. Holders of these securities wanted to have AbitibiBowater immediately declared in default so that they could collect - a delay would allow their credit default swaps to expire.

However, non-payment of bond obligations generally does not become an actual "default" for several days (because the company is given a few days to come up with the money). Moreover, AbitibiBowater obtained a court order allowing the bond payments to be suspended while the company completed its debt restructuring. Thus, the CDS holders (to a value of about $500 million) were out of luck.

Or were they?
An International Swaps and Derivatives Association (ISDA) ruling on March 28 allowed CDS holders (as of March 20) to claim payment through a cash-auction system, as if a default had actually occurred.

The second role that CDS holders played truly was analogous to sadistic spectators placing bets at a suicide. Bowater (which had merged with Abitibi in an over-leveraged deal just two years ago) wanted to exchange its 9% bonds in order to improve its cash flow and to remove the likelihood of bankruptcy. To do this, it needed 97% acceptance from holders of bonds maturing in 2009 and 2010. The company was only able to get a 54% acceptance - largely because many bondholders also held credit default swaps, and so would actually benefit, rather than lose, from a Bowater bankruptcy.

General Growth, a shopping center developer with $27.3 billion in debt (real money even these days) - making it the largest default in U.S. real estate history - demonstrated the darkening cloud that's hovering over the U.S. commercial real estate market. It also underscored the risks of being involved with credit default swaps.

General Growth's mortgage debt had been securitized into mortgage-backed bonds, many holders of which had also bought credit default swaps, so debt restructuring proved impossible. Credit default swaps on General Growth's vaunted Rouse unit were valued by auction on April 15, and were deemed to be worth 71% of par, so investors in them received $710,000 for each $1 million of CDS they held - a nice reward for voting "no" to a corporate restructuring.

Guess what? If busted insurance giant American International Group Inc. (AIG) was the writer of any of the credit default swaps on either AbitibiBowater or General Growth, we as taxpayers have paid the profits of the guys who forced those companies into bankruptcy.

http://webcache.googleusercontent.com/search?q=cache:fAq5x-WKpZ8J:www.philstockworld.com/search/article/farewell-america-switzerland/sites/sites/default/files/Lunch_with_Dave_090409.pdf/content/zero-hedge-petition-break-debt-habit-freeze-debt-ceiling/page/2/partners/permalink/config.xml/page/10/+president+abitibibowater+said+that+sinkings+by+swap+and+derivative+product&cd=10&hl=fr&ct=clnk&gl=ca&client=firefox-a