Dear Mr Tan,
Below is the official notice from Merrill Lynch on the Jubilee 3. It's devastating to for those who have invested in this instrument.
I have read your blogs and the various reasons for people to seek better yielding products because of the extremely low savings and fixed deposit rates.
People who sought after fixed income products are normally adverse to high risk. It's not because of greed. Any sane person would want their savings to have higher returns to hedge against the mounting inflation. Products like Mini Bonds, Jubilee 3,
High Notes 2/5 & Pinaccle notes all come under the fixed income instruments. If there were to be other fixed income products which are straight forward to understand, I believe these risk adverse investors would rather park their money there, including myself. Government bonds are beyond reach of the ordinary because of the high minimum amount required.
Sophisticated structured products inevitably filled the vacuum. Keeping our money under the pillow or savings banks will be foolish if we were to take a leaf from the
famous Rich-Dad-Poor-Dad's aurhor, Robert K. What alternatives do we have when these glossy products roll out of the creative mills of banks?
Not surprisingly, many of us will take the bite.
Please help publish the ML Jubilee 3 in your blog for comments. It seems that there is no recourse at all based on the way it's worded.
Thank You Very Much!
Please see the latest official word from Merrill with regards to Jubilee 3.
Q1. What is the status of the Notes?
Lehman Brothers Holdings Inc., (“Lehman”) being one of the Reference Entities, filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code on 15 September 2008. This filing constitutes a Credit Event under the terms and conditions of the Notes. The Swap Counterparty has submitted a Credit Event Notice to the Issuer on or about 23 September 2008.
Q2. What happens next to the Notes?
The Issuer will redeem the Notes early on the Credit Event Redemption Date which shall occur no later than the 30th London, Singapore and New York Business Day after the date on which the Credit Event Notice was delivered by the Swap Counterparty to the Issuer. In addition, the Notes will cease to bear interest with effect from the 23 June 2008, being the Interest Payment Date immediately preceding the date of delivery of the Credit Event Notice
Q3. How will the Credit Event Redemption Amount be calculated?
The Credit Event Redemption Amount to be determined by the Calculation Agent for and on behalf of the Issuer will be an amount equal to the sum of:
a) the amount which would be realised on the sale of certain debt obligations of Lehman selected by the Calculation Agent in a nominal amount equal to the then outstanding principal amount of the Notes, less costs and expenses associated with the said sale;
b) the Liquidation Proceeds of the Securities minus the then outstanding principal amount of the Notes which shall be
(i) expressed as a positive amount if the Liquidation Proceeds of the Securities are greater than the then outstanding principal amount of the Notes,
(ii) expressed as a negative amount if the Liquidation Proceeds of the Securities are less than the then outstanding principal amount of the Notes and (iii) zero if the Liquidation Proceeds of the Securities are equal to the then outstanding principal amount of the Notes; and
c) the amount of any early termination amount or close out payment receivable (expressed as a positive amount) or payable (expressed as a negative amount) by the Issuer under the Swap Agreement to the Swap Counterparty.
Q4. What is the likely Credit Event Redemption Amount?
The Credit Event Redemption Amount will be determined by the Calculation Agent in accordance with the procedures described in the Pricing Statement. Based on current market conditions, the Credit Event Redemption Amount is likely to be zero or an amount close to zero. It is likely that Noteholders will lose all or substantially all of their principal invested in the Notes. The Calculation Agent will notify you of the Credit Event Redemption Amount as soon as reasonably practicable after its determination.
Q5. What actions do Noteholders need to take and who should they contact if they have questions?
Noteholders who have any questions on this Notice or are unsure as to the action they should take should contact the Distributor through whom they have subscribed for the Notes.
Q6. How will I be notified of the status of the Notes?
Investors should receive notices in one of two ways:
(i) either through one of the distributors or
(ii) directly from the Issuer (Jubilee).
The Issuer has prepared a “Notice to Noteholders” stating that a Credit Event has occurred in respect of Lehman. This Notice was delivered by the Issuer to the various distributors on or about September 25, 2008. The Issuer is preparing to directly mail notices to investors once it receives relevant mailing information from CDP. The Issuer also expects to prepare and distribute a valuation notice informing the Noteholders of the Credit Event Redemption Amount once such amount is determined.
Q7. Can you provide more information on how the Credit Event Redemption Amount is calculated?
The Credit Event Redemption Amount is calculated in accordance with the formula described in the Pricing Statement. See also Q3 above. The Credit Event Redemption Amount is based (among other things) on the amount realized on the sale of certain debt obligations of Lehman. Because Lehman has filed for bankruptcy, these Lehman obligations are trading significantly below their face value. Generally speaking,
these Lehman obligations are currently valued below 20% of their face value. This amount will be further adjusted by
(i) any loss in the liquidation of the Securities (see also Q8 below), and
(ii) any termination amounts due or payable under the swap, to arrive at the Credit Event Redemption Amount. Based on current market conditions we expect the Credit Event Redemption Amount to be zero.
Q8. Can you explain what the Securities represent and whether there is a loss in value in respect of the Securities?
The Securities are notes whose performance is credit-linked to a pool of 120 Underlying Reference Entities.
The current U.S. financial crisis has led to unfavorable market conditions in the broad credit markets which has led to a significant decline in the value of the Securities. The liquidation proceeds of the Securities will likely be significantly less than the face value of the Securities.
AIS is in constant communication with Merrill to bring you the latest updates.
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