PINs Securities NZ (PINs NZ), a credit note issuer backed by Absolute Capital, has confirmed that it will not make interest payments on the 2006 issue of PINs securities during October, and that a similar outcome could affect 2005 PINs notes.

Meanwhile Campbell Smyth, the Absolute Capital portfolio manager responsible for the business’s collateralised debt obligation portfolios (debt and equity), will leave the manager at the end of the week. Smyth, who joined the structured credit manager in 2003, will soon take a position within the fixed income department of Challenger Financial Services. PINs NZ issues credit–backed protected income notes, which bear interest and are capital protected at maturity. In a statement to the NZX, the company said its portfolio has been affected by mark-to-market changes stemming from the recent credit market downturn and that the value of underlying assets had been eroded. This brought an ‘interest retention event’ upon PINs Series 2006-1, meaning the issuer would be unable, at least, to pay interest for October, and that this incapacity was likely to affect the 2005-1 series. “There are certain trigger points that determine whether interest can be paid,” Deon Joubert, Absolute managing director, said. PINs NZ said interest retention was required in these circumstances as a safeguard against disposing investments if its portfolio underperformed significantly. In these cases, payments are delayed until maturity. Absolute Capital, the portfolio manager behind PINs NZ, said it was changing the lineup of managers within the portfolio, in addition to “deleveraging” it. The 2005-1 PINs series, which carries 25 per cent leverage, has outperformed the 2006-1 series, which is 80 per cent leveraged. In a note to investors, Absolute said the increased leverage in the latter series, combined with its heightened exposure to “credit-based strategies”, had been a major factor leading to the difference in performance.

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