Lehman Minibond Series 6 解读迷债系列6

解读迷债系列6，
因为系列6是2003－2004两年间提供最高利息的迷债系列（跟系列5 或系列7－10相比），却是销售量最低的系列（低于5百万美金），其表面挂钩公司也跟其它系列不同：跟多达150个公司信贷挂钩。

Series 6 was issued in Sep.2003, and matured in Sep.2005, but was extended (by issuer) to Mar.2009.

Why Series 6?

It would be interesting to learn how the early Minibond Series was introduced. For Series 6, there was only a "PROSPECTUS". For Series 10 and later, Program Prospectus and Issue Prospectus are offered.

Because Series 6 showed us how Minibond's upfront facade / marketing selling point had been evolved over years, It also showed us how the disclosure level of Underlying Securities related information had gone from LESS to the LEAST, while the prospectus was expanded into Program Prospectus and Issue Prospectus . Similar reduction in disclosure is also observed in the DBS Constellation Notes, if one compares the much polished prospectus for Constellation Series 59 versus the Constellation Series 34-37. The Prospectus for Minibond Series 6 also showed us what banks knew at the early stage about the true features and material risks of Minibond.

Summary of Minibond Series 6.
1. Maturity Term.
Series 6 was issued in Sep.2003, with initial Maturity date in Sep.2005.
Upon maturity, the issuer has the right to extend the maturity date to Mar.2009.

2. It is credit-linked to 150 reference companies ("referecne portfolio") .
The Prospectus listed the 150 reference companies name, and their rating.

3. Prospectus listed the impact to the interest-rate with the number of default event of the 150 reference entities.
- For Sep.2003 - Sep.2005:
0 default => Minibond (Series 6)'s Interest Rate is 5%:
1 default => Minibond (Series 6)'s Interest Rate is 4.15%: ........
5 default => Minibond (Series 6)'s Interest Rate is 0.80%:
6 or more default => Minibond (Series 6)'s Interest Rate is 0:

- For extended Sep.2005 - Mar.2009:
0 default => Minibond (Series 6)'s Interest Rate is 8 %:
1 default => Minibond (Series 6)'s Interest Rate is 6.65%: ........
5 default => Minibond (Series 6)'s Interest Rate is 1.30%:
6 or more default => Minibond (Series 6)'s Interest Rate is 0:


4. Where did the Minibond Money go?
According to Prospectus, it would be used on purchasing "Underlying Securities" with maturity date at Mar.2009.
The Underlying Securities in fact was another structured products.
My Comments:
Prospectus did not use the term 'collateral', the document used 'Underlying Securities'.

5. It claimed to be principal protected. but it also said that if something happened to the Underlying Securities, the principal will be at loss (or total loss).

6. Procedures and Information related to the 'underlying securities' in the Prospectus.

(a) page 53: "APPLICATION PROCEDURES"
(...)
Relevant Dealers will inform prospective investors that copies of the documents listed under paragraph 10 in the section headed "General Information" are available for inspection at the office of the Arranger specified herein ."

(b) in Page 95, "General Information" ,
"10. (...) copies of the following documents will be available .....and the Initial Dealers " (i.e. the distributing banks).

(c) page 96: "(xii): Information Memorandum and all other relevant programme documentation relating to the Underlying Securities Issuer's US $18,000,000,000 EUR Medium-Term Notes Program guaranteed (...)"

(d) page 96: "(xiii) Pricing Supplement relating to the Underlying Securities which supplements the master terms and conditions of the Underlying Securrities set out in the Information Memorandum referered to in (xii) above to form the terms and conditiosn of the Underlying Securities"

My comment:
- The "(xiii)" , i.e. (d) above, refers to the crucial Underlying Securities information document.
- The Underlying Securities Information Documents were available at selling agent (distributor banks) office.
- The "APPLICATION PROCEDDURE" and "General Information" were in fact requiring selling-agent /distributors
(i) to inform clients/potential minibond-buyers all the document information including Underlying Securities Information Document,
(ii) to let clients/potential minibond-buyers inspect all the document information including Underlying Securities Information Document, at selling-agent's office (i.e. at banks if the distributor is a bank). => Both Program Prospectus and Issue Prospectus for later Minibond Series never invited clients to inspect such information/documents at selling agents / distributors office any more.
- Similar requirements for inviting clients to inspect the Underlying Securities Information Documents were also found in the prospectus of Constellation Series 34-37 (in the name of "Charged Asset Information" ), but NOT in the prospectus of Constellation Series 59.

- Did selling agents/distributors inform and give clients Underlying Securities Information Document?
- Did selling agents/distributors read through Underlying Securities Information Document which were available at their site?
* What did they learn about the Underlying Securities' true feature and risks?
* How did the Underlying Securities Information affect Banks' understanding on the Minibond's true features and risks?
* How did the Underlying Securities Information affect Banks' understanding on the Minibond's material risk and material information?
- Is there a connection between such information with the Questions regarding to disclaimers in Wing Hang Bank's Minibond Purchaser Confirmation Form?
Questions: in http://minibondvictim.blogspot.com/2009/08/question-regarding-wing-hang-banks.html


(e) page 96: "Copies of the (...) refered to in (...) (xii), (xiii) and (xiv), will be avialable for inspection as aforesaid with effect from the Issue Date. (...)"

My Comment:
- The Prospectus disclosed that some information (e.g. Underlying Securities Information Document) will be available from the Issue Date, i.e. not available before the Sale-offer closed.
- Similar information on the availability of "Charged Asset Information" (i.e. Underlying Securities equivalent) was also found in the Constellation Series 34-37, but was not found in the prospectus for later Constellation Series (e.g. Constellation Series 59).
- Similar information (disclosure) was dropped forever in the Program Prospectus & Issue Prospectus for Minibond series 10 and later. The Program Prospectus and Issue Prospects never mentioned about the availability of Underlying Securities Information Document.
In the later series (of Minibond and Constellation notes), not only there was no mentioning of the availability of Underlying Securities (collateral) Information document, the well polished Program Prospectus and Issue Prospectus never invited clients to inspect such information/documents at selling-agents/distributors office any more.
WHY?
Because such information did not carry material information and was not relevant material information for understanding the true features and risks of Minibond / Constellation notes ?



7. Distributors of Minibond Series 6:
Dah Sing Bank,
ICBC (Asia),
Mervas Bank,
Shanghai Commercial Bank,
Sun Hung Kai Investment Services Limited,
Wing Hang Bank,
WIng Lung Bank;

8. Sales of Early Minibond Series (based on data from HSBC USA Trustee).
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Series 5: $10.6 million USD; Reference Entities: 1 ; Interest Rate at 3.8%; Jun.2003- Jul.2010;
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Series 6: $4.75 million USD; Reference Entities: 150 ; Interest Rate at 5% for year 1-2, 8% from 3rd year-maturity, pending on number of default event; Sep.2003 - Mar.2009;
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Series 7A: $15.2 million USD; Reference Entities: 6 ; Interest Rate at 4.2%: Nov.2003 - Dec.2008;
Series 7B: $32 million USD ($250 million HKD); Reference Entities: 6 ; Interest Rate at 4.2%:
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Series 9A: $22 million USD; Reference Entities: 6 ; Interest Rate at 3.7% year 1-3, 4.3% year 4-maturity: Mar.2004 - Sep.2009;
Series 9B: $353 million USD; Reference Entities: 6 ; Interest Rate at 3.5% year 1-3, 4.1% year 4-maturity:
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Series 10: $44.6 million USD; Reference Entities: 7 + Additional 125 undisclosed reference entities hidden in CDO Collateral ; USD Interest Rate at 4.25% year 1-3, 4.75% year 4-maturity: May 2004 - Nov.2009;
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Series 11: $42 million USD; Reference Entities: 1 + Additional 125 undisclosed reference entities hidden in CDO Collateral ; fixed + Libor linked float Interest Rate: Jun.2004 - Jun.2010;
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My Comment:
- Series 6 was offering a higher interest rate comparing to other series because Series 6 has 150 reference entities at up front.
- Series 6 Sales was the lowest amongst all the Minibond Series.
- Comparing the Interest Rate (and sales results) offered for Series 6 versus Series 10:
Both are credit linked to over 100 reference entities. But Series 6 listed 150 reference entities at up front, Series 10 listed 1 reference entities at up front and addded another 125 reference entities in the never disclosed CDO.




参考1: Series 6 Prospectus:
http://www.sfc.hk/sfcCOPro/EN/displayFileServlet?refno=0550&fname=Minibond%20Series%206_Prospectus_ENG2.pdf

参考2: 從 迷債系列 6 看 雷曼迷你債券騙局手段之 完美完善過程
http://minibondvictim.blogspot.com/2009/09/6_4956.html
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