Refco's term loan plunged more than 30 points before moving back up and about $100 million changed hands as uncertainty swirled around the company. The company's term loan is at 70 after trading as low as 58 at mid-day. Its 9% '12 bonds plummeted to 38 from 75. Refco's term loan was trading at 101.25 and its bonds were at 108.75 before Phillip Bennett, ceo, was suspended from the company under accusations of fraud. But even after that the bank debt was trading as high as 92 Wednesday night.
Market players complained about a lack of information. An investors meeting scheduled for Thursday never happened and the company has not said much other than it has imposed a 15-day moratorium on withdrawals because liquidity at subsidiary Refco Capital Markets, which represents a large portion of its business, is no longer sufficient to keep it in operation. Traders started grumbling about the possibility of a Chapter 11 filing, but bankers discounted that. "There is so much bad news about the company," a trader said. "People think it will file for bankruptcy and if that happens there are no assets for the company to take control of." Calls to Refco were not returned.
Standard & Poor's lowered its long-term counter-party credit rating on Refco Group to B- from B+. It also cut its subordinated debt to CCC from B- because of the moratorium on the withdrawals. "The company's operating subsidiaries either may not have sufficient liquidity or capital to upstream cash to Refco, or may be prohibited from doing so by regulators," said the rating agency in a press release. Moody's Investors Service downgraded its corporate rating to B2 from B1.
