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Dec. 17 (Bloomberg) -- International Brotherhood of Teamsters President James Hoffa said Goldman Sachs Group Inc. is creating derivatives trades that would benefit from the bankruptcy of YRC Worldwide Inc., the trucking company trying to avert failure with a debt exchange.
The most profitable securities firm in Wall Street history “is actively soliciting bond trades for clients and underwriting credit-default swaps to benefit from a failed exchange and resulting bankruptcy,” Hoffa, the union leader, wrote in a letter dated yesterday to Goldman Sachs Chief Executive Officer Lloyd Blankfein.
YRC, the biggest U.S. trucker by sales, has faced opposition to its plan to exchange $536.8 million of notes for equity from bondholders who also own derivatives that pay out in a default, according to people familiar with the matter. The Teamsters’ pressure comes as Goldman Sachs is under fire from other labor groups over its role in the subprime mortgage crisis.
Investors holding 75 percent of YRC’s debt agreed to the exchange, below the 95 percent required by bank lenders, the Overland Park, Kansas-based company said yesterday in a statement. YRC, which has posted more than $1.7 billion in losses in the past five quarters, must complete the exchange offer as part of agreements with its bank lenders, the Teamsters and multi-employer pension funds, according to a Nov. 24 regulatory filing.
YRC, which extended its exchange offer to 11:59 p.m. today in New York, joins companies including Yellow Pages publisher Idearc Inc. and newsprint maker AbitibiBowater Inc. that met opposition to restructuring outside of bankruptcy court from creditors that hedged their holdings with credit-default swaps. Such creditors will typically get paid whether a borrower defaults or not, and sometimes can make more in a bankruptcy.
Maybe it's time to make CDS more like real insurance by limiting the upside of the contract to the loss of the underlying asset or exposure - exposure of which you would HAVE to directly and exlicitly in order to benefit from the contract. Oh, how I can imagine the bankers are hating me now
. Hate me or not, does this not solve half of the CDS problems? The other half will be solved by clearing them through an exchange and demanding reserves for selling the CDS, you know, just like that boring old insurance industry. You don't see non-CDS sporting insurers blowing up like cherry bombs and running to the government for TARP funds and bank holding status, do you???
For those who really want to speculate, short the bonds and stocks of the companies and accept your market risk like real men (and women, of course).
More from this story:
Union Opposition
The Teamsters aren’t the only union taking on Goldman
Sachs. Workers United, which represents 150,000 people in the
U.S. and Canada, sent letters on Dec. 14 to 10 state attorneys
general that urged them to investigate the role played by
Goldman Sachs in the subprime mortgage market. The union noted
that Massachusetts won a $60 million settlement from the firm
in May when it undertook such a probe.Andy Stern, president of the 2.1 million-member Service
Employees International Union, has led a letter writing
campaign to Goldman Sachs board members demanding information
on the firm’s part in the mortgage crisis and whether the
companies they’ve invested in are cutting jobs.‘Too Much at Stake’
Hoffa wrote that “the relatively small benefit Goldman
would derive for itself in fees or for clients from such a
position is unconscionable given the fact that the 50,000
livelihoods could be ruined by a bankruptcy filing,” according
to the letter obtained by Bloomberg News.Michael DuVally, a spokesman for New York-based Goldman
Sachs, confirmed the bank received the letter.“Goldman does not have a position in the company, nor are
we making markets in the company’s bonds or credit-default
swaps,” DuVally said in a telephone interview yesterday
afternoon.Goldman Sachs sent e-mails to debt investors at around 11
a.m. yesterday, after the deadline for the exchange was
extended, offering pricing levels on YRC bonds and credit-
default swaps, according to people familiar with the matter.
