Refco's term loan bounced back to trade at 92-93 after falling as low as 57-58 following the suspension of ceo Phillip Bennett for securities fraud. Its bonds also jumped 25 points to 52 1/2. Traders said the loans and bonds traded up on the belief that creditors will see better recoveries than previously thought.
The upbeat mood on Refco's prospects follows J.C. Flowers & Co's $768 million bid for Refco's futures brokerage business and certain of its other subsidiaries and assets. By Friday morning, a second bidder, Interactive Brokers Group, had come in with its own $790 million bid. One trader said banks expect to be paid back at par. "Refco is a mess, but it is worth something through the acquisition," said another trader. He added that the company's bankruptcy filing has removed a lot of uncertainty about the company's future. The market panicked after news surfaced that Bennett had been suspended, prompting many to withdraw their investments.
The investor group led by J.C. Flowers includes The Enstar Group, Silver Point Capital, MatlinPatterson Global Advisors and Texas Pacific Group. Mark Winkelman, an ex co-head of Goldman Sachs' fixed income division and former head of J. Aron & Co., would be chairman of Refco. Refco would have the option to maintain a 20% equity stake. Refco Inc, the parent company, and its capital markets division have filed for protection under Chapter 11.