Subprime Lender Files BK
The small investors get nothing, the large investors and hedge funds get their "assets handed to them"....
February 3 – Dow Jones (Christine Richard): “The battle lines are being drawn in a court in Wilmington, Del. in what could be a devastating corporate bankruptcy for individual bondholders.
More broadly, though, the bankruptcy of American Business Financial Services, a…sub-prime mortgage lender, illustrates how large sophisticated lenders, like banks and hedge funds, are able to secure their exposure to companies of lower credit quality by laying claim to specific assets in bankruptcy, leaving unsecured creditors with what’s left. In this case, there may not be much left for the 20,000 unsecured creditors, mostly small investors…
Over the last few years, American Business Financial, which filed for bankruptcy protection on Jan. 21 with $1.07 billion in debt, pledged most of its assets - mainly mortgages and mortgage-related securities - to large lenders and hedge funds who provided it with capital. It owes about $490 million to unsecured noteholders.
With a history of failing to generate positive cash flow, the company was reliant on small investors to fund its operations. It ran advertisements in newspapers across the country offering notes yielding as much as 10% to 13% for a one-year investment…”
February 3 – Dow Jones (Christine Richard): “The battle lines are being drawn in a court in Wilmington, Del. in what could be a devastating corporate bankruptcy for individual bondholders.
More broadly, though, the bankruptcy of American Business Financial Services, a…sub-prime mortgage lender, illustrates how large sophisticated lenders, like banks and hedge funds, are able to secure their exposure to companies of lower credit quality by laying claim to specific assets in bankruptcy, leaving unsecured creditors with what’s left. In this case, there may not be much left for the 20,000 unsecured creditors, mostly small investors…
Over the last few years, American Business Financial, which filed for bankruptcy protection on Jan. 21 with $1.07 billion in debt, pledged most of its assets - mainly mortgages and mortgage-related securities - to large lenders and hedge funds who provided it with capital. It owes about $490 million to unsecured noteholders.
With a history of failing to generate positive cash flow, the company was reliant on small investors to fund its operations. It ran advertisements in newspapers across the country offering notes yielding as much as 10% to 13% for a one-year investment…”
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