Refinancing Noble: a Lose-Lose Deal

Noble Group is insolvent based on liquidation value (a write-off of its commodity contracts or the asset value) but the trader has been in talks with banks to re-negotiate its revolving credit facility — the only thing keeping the company afloat.

Financial Institutions will not warehouse the revolving credit facility (RCF) risks because:

1) would have to set aside far more capital reserve for credit risk than they are authorized under Tier-1 capital ratios rules.

2) cannot hedge the credit risk of Noble Group Ltd at a reasonable cost.

At some points the Banks must get out, must unload the RCF risk with the red pill and it means that Noble will work for the Banks.

This is the equity offering of a company with very questionable or no prospects, transferring risks to retail investors.

In short, this is a lose-lose deal in which everyone ends up looking bad.


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