Bankruptcy filing said possible for Refco LLC - The regulated futures unit

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Bankruptcy filing said possible for Refco LLC
Wed Nov 9, 2005 05:26 PM ET
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CHICAGO, Nov 9 (Reuters) - The regulated futures unit being sold by bankrupt brokerage firm Refco Inc. (RFXCQ.PK: Quote, Profile, Research) could itself file for bankruptcy as part of the sale process, according to a lawyer who represents one of the bidding firms.

"In the past that is the way this kind of situation has been addressed. It's part of the system of safeguarding customer accounts," Kenneth Rosenzweig, attorney with Katten Muchin Rosenman LLP, told Reuters. Bankruptcy was among a "range of possibilities," he said.

A bankruptcy filing could facilitate the transfer of customer accounts from Refco LLC, the futures arm of Refco Inc., Rosenzweig said earlier during a panel discussion at the Futures Industry Association meeting here.

Such a move would help shield the buyer from current and possible future potential claims against Refco LLC.

Refco is auctioning its assets, including Refco LLC and several overseas affiliates, and is expected to choose the best bid late Wednesday. The winning bid is expected to be presented to bankruptcy court on Thursday.

The four bidders believed to still be in the process are Man Financial, the brokerage arm of British hedge fund firm Man Group Plc. (EMG.L: Quote, Profile, Research) , U.S. private equity group J.C. Flowers & Co., U.S. broker-dealer Interactive Brokers Group, and a group involving the investment arm of the Dubai government, U.S. buyout firm Yucaipa Cos. and Marathon Asset Management LLC.

Rosenzweig represents Interactive Brokers Group, but declined to discuss specifics of the firm's bid or other aspects of the auction.
 
Refco Seeks Authorization To Put Refco LLC In Ch 7
See this story, too;

What exactly does this mean??

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DOW JONES NEWSWIRES
November 9, 2005 5:39 p.m.

WASHINGTON -- Refco Inc. (RFXCQ) asked a bankruptcy judge for permission to liquidate its flagship business, saying it wasn't able to complete an auction of its Refco LLC unit.

In court papers filed late Wednesday, the company said "the majority of potential bidders" for Refco LLC asked it to organize the sale in a way that would permit the unit's liquidation under Chapter 7 of the U.S. Bankruptcy Code. If a sale of the unit occurs, Refco said, Refco LLC will file voluntary Chapter 7 petition.

"As the negotiations continued, it became increasingly clear that the sellers would obtain the maximum value...by invoking the protections afforded under subchapter IV of Chapter 7 of the Bankruptcy Code."
 
Full story below:

It seems the bidders want to "buy REFCO's customer accounts" and in effect the auction would lead to a transfer of all REFCO accounts to the winner say MAN, IB (God forbid!), etc.


It seems this means, in effect, that the winning bid owuld have to be by a broker who can receive the actual customer accounts.

Wow!. What do you guys think?

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Refco Seeks Authorization To Put Refco LLC In Ch 7


DOW JONES NEWSWIRES
November 9, 2005 6:07 p.m.

WASHINGTON -- Refco Inc. (RFXCQ) asked a bankruptcy judge for permission to liquidate its flagship business, saying it wasn't able to complete an auction of its Refco LLC unit.

In court papers filed late Wednesday, the company said "the majority of potential bidders" for Refco LLC asked it to organize the sale in a way that would permit the unit's liquidation under Chapter 7 of the U.S. Bankruptcy Code. If a sale of the unit occurs, Refco said, Refco LLC will file voluntary Chapter 7 petition.

"As the negotiations continued, it became increasingly clear that the sellers would obtain the maximum value...by invoking the protections afforded under subchapter IV of Chapter 7 of the Bankruptcy Code."

The request marked the latest of a series of setbacks Refco has suffered since it disclosed that its chief executive, Phillip Bennett, had hidden $430 million in bad debt. The disclosure triggered a run on the company's customer accounts and prompted Refco to seek bankruptcy court protection.

Refco left Refco LLC, a regulated futures business, out of its bankruptcy filing in the expectation that it would be able to sell the unit to pay off its creditors. That, it said, would permit the company to reorganize under Chapter 11 of the bankruptcy code.

Refco last month organized a quick sale to a consortium led by the investment firm J.C. Flowers & Co., which offered $768 million for Refco LLC. But the consortium backed out after U.S. Bankruptcy Judge Robert Drain indicated he wouldn't approve expense payments it was seeking in the deal.

After that, Refco said Wednesday, "few potential bidders expressed interest" in the sale of Refco LLC "structured as a stock sale." Instead, they expressed "considerable interest in a sale of the assets." Refco didn't name any of the bidders, although it said it received "several serious bids" before the auction deadline expired Wednesday.

At the auction, Refco said, "the most attractive bids included conditions" that Refco LLC begin a Chapter 7 case that would include a transfer of customer accounts to the buyer. Such a case would also include provisions forbidding any legal challenge to the transfer of customer accounts.

Refco said both the U.S. Bankruptcy Code and regulations of the Commodity Futures Trading Commission recognize "that the immediate transfer of customer accounts and property to a new broker is necessary to preserve value for the customer...and to prevent disruption in the commodity markets."

It said the code requires a U.S. bankruptcy trustee overseeing the Chapter 7 liquidation to transfer the customer accounts no later than four days after a judge approves the sale of Refco LLC.

-By Joseph Rebello and Marc Hopkins; Dow Jones Newswires; 202-862-9279
 
Wow:p :p :p

Chapter 7.

It means they are going out of bussiness, and the customer account will be tranfered over to another firm....

You don't see this everyday.
 
2nd UPDATE: Refco Aims To Liquidate Flagship Unit


DOW JONES NEWSWIRES
November 9, 2005 7:47 p.m.

(Updates with comments from company spokesman regarding the auction's completion time and information from a Refco statement released late Wednesday.)

By Joseph Rebello and Marc Hopkins
Of DOW JONES NEWSWIRES
WASHINGTON -- Refco Inc. (RFXCQ) sought court permission Wednesday to liquidate its flagship Refco LLC unit, saying it concluded during an auction that most of its prospective buyers didn't like the idea of a stock sale.

In papers filed with the U.S. Bankruptcy Court in Manhattan, Refco said that if it secures a buyer it expects Refco LLC to file a voluntary petition to liquidate under Chapter 7 of the U.S. Bankruptcy Code. That unit, a regulated futures business, so far hasn't been part of Refco's bankruptcy case.

"As the negotiations continued, it became increasingly clear that the sellers would obtain the maximum value (for Refco LLC) by invoking the protections afforded under...Chapter 7 of the Bankruptcy Code," Refco said. It asked the court to bar any legal challenge to its plan to tranfer Refco LLC's customer accounts to the buyer.

A Refco spokesman, James Craig, said late Wednesday that negotiations continue, and that he expects the auction to be completed in time for a judge to rule on the matter early Thursday.

In a statement late Wednesday, the company said a Chapter 7 filing for Refco LLC "does not mean that customer accounts are being liquidated or that employees or brokers are losing their jobs." Instead, "this is the most efficient mechanism for implementing the sale of Refco's business as a going concern."

Refco has suffered a series of setbacks since it disclosed that its chief executive, Phillip Bennett, had hidden $430 million in bad debt. The disclosure triggered a run on the company's customer accounts and prompted Refco to seek bankruptcy court protection.

Refco left Refco LLC out of its bankruptcy filing in the expectation that it would be able to sell the unit to pay off its creditors. That, Refco said, would permit the company to reorganize under Chapter 11 of the bankruptcy code.

Refco initially organized a quick sale to a consortium led by the investment firm J.C. Flowers & Co., which offered $768 million for Refco LLC. But the consortium backed out after U.S. Bankruptcy Judge Robert Drain indicated he wouldn't approve expense payments it was seeking in the deal.

After that, Refco said Wednesday, "few potential bidders expressed interest" in the sale of Refco LLC "structured as a stock sale." Instead, they expressed "considerable interest in a sale of the assets." Refco didn't name any of the bidders although it said it received "several serious bids" Wednesday.

At the auction, Refco said, "the most attractive bids included conditions" that Refco LLC begin a Chapter 7 case that would include a transfer of customer accounts to the buyer. Such a case would also include provisions forbidding any legal challenge to the transfer of customer accounts.

Refco said both the U.S. Bankruptcy Code and regulations of the Commodity Futures Trading Commission recognize "that the immediate transfer of customer accounts and property to a new broker is necessary to preserve value for the customer...and to prevent disruption in the commodity markets."

It said the code requires a U.S. bankruptcy trustee overseeing the Chapter 7 liquidation to transfer the customer accounts no later than four days after a judge approves the sale of Refco LLC.

In the statement Wednesday, Refco said a Chapter 7 filing for Refco LLC "is merely the most efficient procedure for immediately transferring Refco's open customer accounts in bulk to an appropriate buyer of Refco's business."

It says customers' accounts "will continue to be handled by their same brokers on the same platforms on which they currently trade."

-By Joseph Rebello and Marc Hopkins; Dow Jones Newswires; 202-862-9279
 
Just to seek clarification, does this means that the exchange memberships will not be transferred to the buyer?
 
Refco LLC Clarification Regarding Sale of Assets
NEW YORK, Nov. 9 /PRNewswire-FirstCall/ -- It has been reported that Refco Inc. (OTC Bulletin Board: RFXCQ) plans to implement the sale of its regulated business through a Chapter 7 proceeding. This has created a misimpression and Refco would like to make the following clarification:

"For Refco LLC, our regulated futures commission merchant, this is merely the most efficient procedure for immediately transferring Refco's open customer accounts in bulk to an appropriate buyer of Refco's business that will be the result of a transaction to be approved by the Court. This action will expedite the process and quickly move accounts that will continue to be handled by their same brokers on the same platforms on which they currently trade.

"This situation does not mean that customer accounts are being liquidated or that employees or brokers are losing their jobs. This is the most efficient mechanism for implementing the sale of Refco's business as a going concern."

For more information, visit http://www.refco.com . For access to Court documents, visit http://www.nysb.uscourts.gov (a PACER account is necessary to access the Court web site).

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of the 1995. In this press release, all statements other than statements of historical fact are forward looking statements that involve risks and uncertainties and actual results could differ. These forward-looking statements are based on assumptions that we have made in light of our experience and on our perceptions of historical events, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements have a reasonable basis, you should be aware that numerous factors, including the outcome of the Audit Committee's investigation; our ability to obtain financing arrangement or alternatives; changes in domestic and international market conditions; competition; our ability to attract and retain customers; our relationships with introducing brokers; retention of our management team; our ability to manage our growth or integrate future acquisitions, our exposure to significant credit risks with respect to our customers, international operations and exchange membership requirements, the effectiveness of compliance and risk management methods, potential litigation or investigations, employee or introducing broker misconduct or errors, reputational harm, and changes in capital requirements, could cause actual results to differ materially from our expectations. Because of these factors, we caution that you should no place undue reliance on any of our forward-looking statements. Further, any forward looking statement speaks only as of today. It is impossible for us to predict how new events or developments may affect us. The Company disclaims any intention or obligation to update or revise any forward-looking statements, either to reflect new information or developments or for any other reason.

SOURCE Refco Inc.

CONTACT: Sandra Sternberg, Steven Goldberg, or James Craig, all of Sitrick And Company, +1-212-573-6100, for Refco Inc. -0- Nov/10/2005 0:44 GMT

Last Updated: November 9, 2005 19:44 EST
 
Thx, but I am not able to draw a firm conclusion from that release. It gives the impression of business as usual but does not clarify if this is a transfer of assets with exchange memberships remaining as an asset of Refco LLC or if the membrships are being included in the deal, something that strikes me as unlikely.

Maybe "accounts that will continue to be handled by their same brokers on the same platforms on which they currently trade" means can trade if where the acquiring broker has exchange membership.
 
Quote from mokwit:

Thx, but I am not able to draw a firm conclusion from that release. It gives the impression of business as usual but does not clarify if this is a transfer of assets with exchange memberships remaining as an asset of Refco LLC or if the membrships are being included in the deal, something that strikes me as unlikely.

Maybe "accounts that will continue to be handled by their same brokers on the same platforms on which they currently trade" means can trade if where the acquiring broker has exchange membership.
More...

I too can ot make "frim conlcusions", my guess i sthat they wish to structure it as an "asset sale', i.e. REFCO LLC will sell to the winning bidder all the viable assets - cust accounts, exchnage memberships, clearing technology, electronic traidng platforms, etc. That is everything required to run the business, the new buyer will get but by not buying REFCO stock, the new buyer will be shielded from legal liability (in theory). I presume also that the new buyer will auotmaticlaly hire existing REFCO employees. I would gues REFCO would make continued employment by it's employees a condition of the bid.

All should be clear by tomorrow..........
 
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