Asian CDO investments from Pinnacle Performance wiped out

Holders of some CDO notes issued by Pinnacle Performance and arranged by Morgan Stanley Asia are likely to see their investments wiped out, according to Singapore’s Straits Times. Pinnacle Notes Series 9 and 10 were linked to some of the biggest names battered by the financial crisis, including Lehman Brothers, Freddie Mac and Fannie Mae and Iceland’s Kaupthing and Landsbanki banks.

Standard & Poor cut the ratings of the underlying assets tied to Series 9 and 10 from AA to CCC-. The drastic ratings downgrade was attributed to “unprecedented events in the financial markets”, which caused a writedown of the outstanding principal amount of the underlying assets held by Pinnacle Performance as the note issuer.

The article says that the writedown created a mandatory redemption event, with investors receiving a pro-rata share of the sales proceeds. But notices on Morgan Stanley’s website state that: “Given the current market values of the underlying assets and the credit default swap transaction, we anticipate that investors will lose all of their original principal investment”.

Series 9 and 10 were sold in October last year by institutions and brokerages including DMG Securities, Hong Leong Finance, Kim Eng Securities, OCBC Securities and UOB Kay Hian.