Jan Olaf Gaudestad

Norwegian Towns Investing in Tender Option Bonds

why Tender Option Bonds rarely become a good investment

• Broschiertes Buch

Produktbeschreibung

In July 2007, eight Norwegian municipalities invested in complex financial instruments sold by Citigroup through Terra Securities. All eight municipalities were hydro electric power producers and a considerable amount of their tax income was based on concession fees from electricity. To stabilize the volatile income from the energy market, the municipalities sold the future electricity production and invested the present value in the international financial markets. Narvik Kommune, one of the eight municipalities, invested in a Tender Option Bond (TOB) using a Collateralized Debt Obligation (CDO) as collateral. Only four months after the initial investment, Citigroup liquidated the investment creating a realized loss of 90%. The analysis of the TOB and the CDO structure shows that the reason for the sudden drop in the investment value was related to the loss of correlation between taxable and tax-free interest rates causing the hedges to break. In addition, the mark-to-market valuation guidelines created by the Financial Accounting Standards Board (FASB) did not offer clear guidance for how to valuate illiquid securities such as the TOB and the CDO.

Produktdetails

• Verlag: LAP Lambert Academic Publishing
• Seitenzahl: 88
• Erscheinungstermin: 16. August 2010
• Englisch
• Abmessung: 220mm x 150mm x 6mm
• Gewicht: 149g
• ISBN-13: 9783838385792
• ISBN-10: 3838385799
• Artikelnr.: 31299437

Autorenporträt

received his MBA from Santa Clara University in 2009 specializing in fixed income. He earned a masters degree (M.S) in Physics in 2001 from University of Maryland, College Park, USA. He received a masters degree (M.S) in 2000 from the Physics Department at the Norwegian University of Science and Technology in Trondheim, Norway.