Shareholders in specialist lender International Securities Trading Corporation (ISTC) are unlikely to recover their money after London investment bank Collins Stewart signed a deal to take control of the troubled company, write Arthur Beesleyand Simon Carswell.
Collins Stewart has agreed to invest €5 million in ISTC for 100 per cent ownership of the business. Subject to the approval of creditors and the High Court, the transaction will be executed via a scheme of arrangement.
Existing shareholders and creditors will be given an opportunity to invest €2 million for a 20 per cent stake in the business through a convertible loan note which will pay participants an annual coupon of 3 per cent.
ISTC examiner John McStay will post the terms of the proposed scheme of arrangement to creditors in the coming days. The company's debts were estimated at €871 million when it moved to seek High Court protection last November after it scrapped a €150 million fundraising and wrote down its investments by at least €70 million. This followed a downgrading of its assets.
Collins Stewart's advisory unit Hawkpoint was adviser to ISTC as Mr McStay sought potential investors to provide new capital to the company to fund its rescue. Others in frame to rescue the business were Goldman Sachs, hedge funds Silverpoint and Avenue Capital and certain German institutions.
Given the size of the new investment in ISTC and the scale of its estimated debts, creditors are likely to receive a small dividend under the proposed scheme of arrangement.
Backed to the tune of €160 million by some of the wealthiest and most prominent Irish business figures, ISTC is the largest local casualty of the credit crunch on the international financial markets. Creditors include ABN-Amro, Bank of America, Merrill Lynch, Morgan Stanley and Royal Bank of Scotland.
The company was set up in 2005 by former Anglo Irish Bank director Tiarnan O'Mahoney, with the backing of investors such as Fermanagh entrepreneur Seán Quinn, Anglo Irish Bank chairman Seán FitzPatrick, telecoms billionaire Denis O'Brien, developer Paddy Kelly and a large number of others.
Collins Stewart chairman Terry Smith will take over as chairman of ISTC if the scheme is approved. "The original ISTC business model was good, supplying capital to the banking community," he said.
A former group finance manager at Barclays, Mr Smith said the process of finding a new backer for the business was open and competitive. "We intend to return the company to its original core business. There is evidently even greater demand for the supply of capital to banks today and this is where ISTC's expertise lies. We will seek to rebuild its business using Collins Stewart's expertise and relationships."
Mr O'Mahoney declined last night to disclose the scale of ISTC's debts or the proposed dividend that will be put to creditors.
"We saved as much as we could, in that we saved something and left opportunities for our investors and creditors if they want to participate," he said.
"We have preserved ISTC and we have an investor who can help us going forward. It is damage limitation and a survival exercise.
"Under the circumstances we face, and given the extraordinarily difficult market environment, approval of the scheme will represent the optimum outcome for ISTC, particularly for creditors, investors and staff."
Collins Stewart has had an office in Dublin since 2003. The bank has a significant presence in Singapore and New York.
