Sent to Coventree

Rather ironically, a Canadian investment company called Coventree has been ostracised by investors, and (almost) literally “sent to Coventry“. Coventree Inc, which specialises in structured credit, saw its share price fall by 32% on Monday and by 72% yesterday after the recent credit crunch meant that it was unable to refinance C$700m (about £330m) of maturing debt. After failing to refinance the debt, Coventree went to lenders requesting additional loans, but was initially shunned. In a press release, the company said that “certain liquidity providers have advanced funding, some have disagreed that they have an obligation to fund, some are in discussions with the company, and some have not responded”.

The company did yesterday eventually manage to place C$600m, but warned that there are no assurances that it will be able to keep issuing ABS and there is a risk of default. DBRS, a Canadian credit rating firm, said that 17 issuers of ABS are also seeking to raise cash, and their failure to receive funding could result in defaults on outstanding paper.

This is a good example of contagion – what was initially just a US sub prime issue is spreading across borders and is hitting firms that aren’t necessarily connected with sub prime. If companies can no longer finance their long term liabilities with short term funding, then implications for the credit market remain significant despite recent intervention from central banks.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Richard Woolnough

Job Title: Fund Manager

Specialist Subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

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