Solving this problem becomes much more difficult if you don’t know how much any future payment will be – or even if there will be any future payment – and when that future payment will be received. Therefore, it is interesting that several firms are offering to buy these bankruptcy claims from former MF Global customers. One firm has offered a lump-sum payment equal to approximately 57% of the value of their claim, which translates to 16¢ of the remaining 28¢. There are several other firms with competing offers, including one that pays a smaller percentage up-front but includes a percentage of any future payout from the bankruptcy trustee.

How should former MF Global evaluate these offers? There is no obvious answer to this question, but anyone who is thinking of selling their claim should consider the following points as they make a decision.

First, the firms who buy these claims do this strictly as a business – one specializes in bankruptcy restructurings, another is an investment group – and do not have any formal role in the bankruptcy process. To clarify this point, the bankruptcy trustee issued the following “Message Regarding Claims Trading” on February 1:

“Both commodities futures and securities customer claims and general creditor claims may be transferred in the [MF Global] liquidation proceeding. To receive notices and distributions with respect to a transferred claim, notice of a claim transfer (if any is required to be filed with the bankruptcy court) must be provided in accordance with Bankruptcy Rule 3001(e).

“The Trustee neither encourages nor discourages claims trading. Potential transferors and transferees of claims should make their own independent evaluation of whether to enter into a claims trade based upon the public record in this case. The Trustee notes that a properly transferred claim merely provides the transferee with the right to pursue distributions on account of such claim. It is not a determination of the validity, amount or priority of such claim, nor of any claim or defense that the Trustee may have with respect to that claim or as against the transferor or transferee of such claim.”

Second, the fact that one of these firms is offering to pay 57% indicates they believe there is a better than 50:50 chance of payment through the MF Global bankruptcy process. The range of possibilities includes a 57% probability of a full payment and a 100% probability of a 57% payment. If you believe the actual chances are better, then it may be worthwhile to decline the offer, maintain your claim and wait for the bankruptcy case to play out. If you believe the actual chances are worse, then it might be prudent to accept the offer and sell your claim.

Third, there are several firms willing to buy these claims, so be sure to shop around. One or more of these firms already may have contacted you, since the list of former MF Global customers who have filed claims and the amounts of those individual claims is a matter of public record. Competition for sellers always forces buyers to sharpen their pencils, so be sure to check out other offers rather than simply accept the first one that comes along.

Finally, before accepting any offer, have a financial advisor, accountant, attorney or other professional “run the numbers” and make sure a particular offer makes sense for you and your situation. Such factors as the size of your claim and your personal financial condition can have a big influence on the “right” answer for you.


Read the article at farmdoc daily.