The High Court has appointed an interim examiner to International Securities Trading Corporation, which lends capital to banks, after being told ISTC is insolvent due to events caused by the crisis in the financial markets.
The alternative to examinership would involve liquidation and a 'fire sale' of ISTC's assets resulting in a shortfall of some €871m, Mr Justice Peter Kelly noted.
ISTC's creditors were 'a veritable who's who of the banking world on an international scale', he added.
The judge said the application for court protection resulted from ISTC's becoming a victim of the recent volatility in the financial markets.
Its problems arose from the recent downgrading of Structured Investment Vehicles (SIVs) and consequent demands for repayment of those SIV assets which ISTC had procured on the basis that it had had 'to borrow short and invest long'.
Because of the recent market turmoil, SIV repayment demands had been made and it was unable to meet those demands, the judge said. The structuring of its other assets and a default mechanism had led to further demands in other areas and it was unable to pay its debts.
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 as a going concern, the judge noted.
These included agreement with enough secured creditors to continue trading with ISTC, the company being able to cap its exposure to collateral calls by secured lenders, and the approval of an appropriate scheme of arrangement.
On the evidence, the judge said he was satisfied to appoint Mr John McStay as interim examiner to the company. He noted Mr McStay had had 400 shares in ISTC, described as 'valueless', but had disposed of those.
He listed the hearing of the petition for examinership on December 17 and directed that the petition be advertised in newspapers here and in the Financial Times and Wall Street Journal.
Earlier, in applying for interim examinership, Mr Michael Collins SC, with Mr Rossa Fanning Bl, for ISTC, said the directors believe, provided certain conditions are met, the company or part of it has a reasonable prospect of survival.
Some creditors were prepared to explore restructuring, he said. The company's assets were illiquid in even the best market conditions and, given the current market crisis, there was a 'commercial imperative' to deal with ISTC to avoid having a 'fire sale' with bonds either not being sold at all or being sold in a very depressed market.
The application for examinership came after an ISTC board meeting this afternoon and followed a warning issued on November 23 last by a German bank creditor that it would file a petition to wind up ISTC within three weeks unless its debt of some €176,000 was paid.
ISTC was founded in May 2005 by Tiarnan O'Mahoney, former chief operating officer of Anglo Irish Bank, and employs 18 people.
Mr Collins said the petition was prompted by recent problems relating to ISTC's SIVs, which represented some 7% of the company's total risk assets and those problems in turn were caused by the crisis in the financial markets.
In documents presented to the court, ISTC said it had invested some $305m in SIV capital notes. The SIVs were sponsored by leading international banks.
But on November 8, most of ISTC's SIV assets were either placed on review for possible downgrade or were downgraded by Moody's Investor Services.
Downgrading meant SIV capital note facilities became immediately repayable and, because of the turmoil in the financial markets, demands for repayment were made by several banks and financial institutions. ISTC was unable to meet those demands.
The inability to repay the SIV funding created a default under those facilities which caused a cross default in ISTC's facilities with all except one of its senior lenders, the company said.
ISTC said it had been trading profitably until this situation arose. In September last, it had cash on hand of some €160m but market volatility had reduced that sum to about €30m.
The Board had previously been satisfied it was appropriate to value SIV assets in its financial statements at cost but it now had to adopt a market value approach to SIV valuation. That meant it had to a make at least a €70m provision in its September 2007 financial statements.
As a result of this and other events, the company had decided to enter into negotiations with its banking creditors earlier this month. It also decided not to meet margin calls and other demands for payments from creditors pending the outcome of the negotiations.
On November 12 last, it had issued a statement to the Irish Stock Exchange and its stockbrokers were instructed to cease making trades in the grey market in its shares.
In March 2007, ISTC had made loans of some €1.9 billion through investing in various instruments and its loan portfolio was made up of some 140 debtors across 22 countries.
