By Stan Szymanski
On September 9, 2021 I wrote my first article opining about the bankruptcy of Evergrande while the rest of the financial press was carrying water for the financial industry and spinning yarns about the company making their interest payments when none such payments were made. Now, much of the financial press is saying that Evergrande is on the verge of bankruptcy while the major rating agencies have classified the company as ‘RD’ (Restricted Default) which allows them to still operate while they are delinquent on their past due interest and principle bond payments. If this firm were allowed to be labeled as ‘D’ (default) by the rating agencies, could it set off a cascade of bankruptcies, derivatives implosions and chaotic market sell off? In another horrible market related discovery, what about the skullduggery that has been allegedly been uncovered with the shares of AMC by the ‘apes’ and could this have market wide ramifications, currently unseen by 99% of the public?
Today we have the pleasure and honor of asking these questions to Dr. Marco Metzler, an investment banker and rating analyst with more than 25 years of work experience in the global insurance as well as the rating industry. Dr. Metzler is the former CFO of Prisma Life Insurance AG in Liechtenstein where he managed 1.2 Billion in assets. He worked at Deutche Bank and UBS before joining Fitch as Director of Ratings for international insurance groups and the German market (Please note that nothing contained in this writing is personal or corporate financial advice-please consult your investment professional).
Dr. Metzler, can you give us your synopsis of the Evergrande situation?
Evergrande is the most indebted construction company in the world, based in China, which has officially defaulted on both onshore and offshore bonds since December last year and is no longer allowed to operate. Nevertheless, it continues to operate as if nothing had happened. But if it is finally and legally forced into insolvency, it will trigger the biggest financial crisis since 2008.
Why is the distinction so important between ‘SD (Selective Default) and ‘D (Default)’ and if Evergrande were declared to be ‘D’ by the rating agencies could there be a ‘domino’ type of effect in a much more broad realization of insolvency and sell off in the markets?
An "SD" rating is assigned when the rating agency believes that the obligor has selectively defaulted on a particular issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations as they come due.
A "D" rating is assigned when it believes that there is a general default and that the obligor will not meet all or substantially all of its obligations as they come due. This is generally the case when a bankruptcy case is officially declared by court and a liquidator has been appointed.
Now the big and noticeable difference between the "SD" and "D" ratings is that with the "SD" rating, Evergrande's bonds can still be used as collateral by other financial institutions. Whereas with a “D" rating Evergrande totally defaults and is forced into insolvency.
Dr. Metzler-When you mention that in an ‘SD’ default that the Evergrande bonds can still be used as collateral-does that mean that bonds that might be trading at 20 cents on the dollar can be used as collateral at a value of $1.00? In some cases to borrow against the purchase of other securities? It seems like a house of cards…
Yes, it’s possible. The collateral has to have a market value at the time the bond is issued that is at least equal to the value of the bonds.
Only because You/DMSA (Deutsche Markt Screening Agentur where you hold an advisory position) actually hold a position in Evergrande bonds -and- decided to file for bankruptcy proceedings against Evergrande do we even know what we know about this situation. The world owes you a debt of gratitude. What is your assessment of the offshore bondholders getting any recompense? Can/will Evergrande be made to sell some of its US holdings for instance to pay bondholders?
Thank you very much!
Just recently, other offshore creditors have finally threatened to take tough legal action if Evergrande does not protect our interests. In the past, the company had increasingly emphasized that onshore creditors and employees were the highest priority, and the Chinese authorities have also emphasized this several times.
Normally, it also looks like offshore creditors will go away completely empty-handed. The probability of this is high.
However, individual creditors have now taken legal action against Evergrande in order to have their principal and interest reimbursed. They may also have a chance of achieving this in individual cases.
Can you give us an overview of the AMC situation and it’s importance to the overall market picture please and-Who are ‘the apes’?
AMC stands for the AMC Entertainment movie theater chain and is most often titled meme stock along with GME, the GameStop stock. These have seen a gamma squeeze in January 2021 as they have been extremely shorted by hedge funds like Citadel. The Apes are a community of retail investors on Reddit who grew up with these companies and are fed up with how billionaire investment funds with speculative money willing to send their childhood companies into bankruptcy and even make a lot of profit doing so. That's why they buy the shares and hold them to drive up the price so that the hedge funds suffer a loss when they have to buy them back and ultimately even bring about the MOASS - Mother Of All Short Squeezes.
Are you able to share why people might consider re-registering their book entry (shares held in a brokerage account) into their own name through a process known as DRS (Direct Registration System) through a company known as Computershare? What risks, if any are there for the investor?
You can think of a broker as a bank where you deposit your money for safekeeping. If 1000 customers have $1000 in their account, the bank does not keep 1000 x 1000 physical cash in its vault. It knows that never all 1000 customers will need their money at the same time, so it has the flexibility to lend out your money as it sees fit. When this phenomenon occurs, it is called a "run on the bank."
The brokers now issue you a DTCC $AMC derivative share, which is still in the broker's name and mimics some of the benefits of the real AMC share. They can then create duplicates through unlimited borrowing so they never have to cover their short sales. DRS, on the other hand, is a run on brokerages. It is now taking place in slow motion. Brokers are running out of physical shares entrusted to them by the apes for safekeeping. Computershare (CS) is the official custodian of the shares and AMC transfer agent. When real shares are purchased by CS and transferred through DRS, DTCC is forced to take the real shares out of their custody and close out $AMC positions.
What they have in hand is not enough to meet the overwhelming redemption requests because they sold naked shorts/synthetics to the Apes. It is inevitable that some redemption requests will be delayed while they scramble to find the real shares. Some may have already experienced this delaying tactic in various forms and under whatever pretexts they could find.
Until now, there is no real risk involved, and the minor ones potentially involved are nothings against the gain of the resulting MOASS.
How can all of our market institutions be participating (colluding?) together in the alleged defrauding of retail shareholders and why hasn’t there been some move to bring them to justice? Maybe that is what the AMC ‘Apes’ are doing…
Retail investors have to stand up for their rights. In the long run justice and the truth will win over the evil forces.
If this level of chicanery is going on with AMC then wouldn’t one assume that greedy, immoral people at the center of Wall Street are doing the same thing with -all- stocks of size? If this is going on with not just one company, but perhaps thousands-the implications are truly mind boggling..What are the implications if this is true and in your opinion, could it be true?
Right. I had just recently drawn attention to another stock on LinkedIn that is being played the same game as stocks like AMC and GME, namely Genoil (GNOL).
When you put all of this together, does it have the ability to negatively affect the world status of the US Dollar and the advancement of ‘The Great Reset’?
We just started the phase of a crashing market. In some days people will panic and we will see a levels of 50% and more down. There will be no room for increasing interest rates to fight inflation for the FED. Hyperinflation will be the last exit door for the FED. The trust in the dollar and the world financial system will fade away. This is the opportunity to build a better system doing a “Great Reset”.
I will comment on this in detail as soon as we see the big market crash.
Dr. Metzler, thank you so much for sharing your knowledge with all the readers today. Do you have anything else to share that is on your heart today?
God gave every human being a free will. Use this divine capability to make up your own view of the current status of the world. Let us use this power to make a decision to awake by connecting with God. In doing so we should insisting on justice and the truth to make the world a better place to live. I made this decision for myself and will continue to be a light for everybody who wants to know the truth and will be there also after the big crash to rebuild the new economic system in the world together with awakened souls who wants to take the responsibility for doing the "Great Reset" to turn the world to a new "Garden of Eden"
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice.
