The first Irish casualty of the credit crunch has received new investment of $8.2 million (€5.7 million) and reached agreement with its bank customers allowing it to continue in business.
After five months of difficult negotiations, a restructuring of Structured Credit Company (SCC), the Dublin firm that assumed credit risk for banks against some of their losses, has been agreed. A scheme of arrangement for the firm was approved by the High Court yesterday.
Under the scheme, all but one of SCC's 12 counterparties (clients) will receive 5 per cent of the difference between the collateral posted to them by the firm and the higher level of collateral they demanded from the company due to the credit crunch. The market volatility created higher risks, forcing the counterparties to seek greater protection from SCC.
The 11 exiting counterparties will share about $15 million in existing capital. The $8.2 million investment is being led by an existing investor in the Dublin firm, US private equity firm Aquiline Capital.
SCC's debts jumped from $55 million in early July to $438 million the following month. At that time, it had posted collateral of $175 million and cash of $15 million. An interim examiner, Billy O'Riordan of PricewaterhouseCoopers, was appointed on August 20th, three days after an ex-parte application (only one side represented) by one of the counterparties seeking the liquidation of the firm.
SCC's investors had agreed to make available a further $120 million in collateral for the counterparties, but during the period of examinership, 11 counterparties ended their relationships with the firm. French investment bank Calyon, a small investor in the firm, is the only counterparty continuing to trade with SCC. Some $5 million of the new investment will be posted as collateral for Calyon. The remaining $3.2 million will be used for working capital and operating costs.
Ms Justice Mary Finlay Geoghegan congratulated all the parties involved in the restructuring, which she described as an "extremely difficult exercise".
Solicitor Rod Ensor of Matheson Ormsby Prentice, for Calyon, raised an issue over a letter of credit between his client and Aquiline, but which did not prevent the scheme of arrangement being approved. The sides are in talks to resolve the issue.
