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China’s PBOC Braces for New Year Cash Demand With Loan Rollover

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The People’s Bank of China rolled over a
269.5 billion yuan ($43.4 billion) lending facility to banks and
added 50 billion yuan in loans as it seeks to ease liquidity
ahead of the Chinese New Year holiday.

The facility, first issued in October with an interest rate
of 3.5 percent, was rolled over to keep the money market stable,
the central bank said in a statement on its official microblog
account. It said the move also aims to smooth liquidity before
the holiday, which begins Feb. 18.

The PBOC has sought to shore up liquidity and broaden
stimulus efforts in recent months, cutting the benchmark lending
rate in November and issuing billions of yuan in short- and
medium-term loans to banks. Each year around this time, demand
for yuan starts to spike as Chinese give each other red
envelopes full of cash for the Lunar New Year holiday.

“There may be some irregular capital inflow and outflow
around the world,” PBOC Governor Zhou Xiaochuan said at a World
Economic Forum
panel in Davos, Switzerland minutes after the
central bank announcement. “That may also be a source of
volatility.”

The PBOC doesn’t intend to provide too much liquidity, Zhou
said in Davos.

China’s money-market rate climbed the most in a month today
amid speculation banks will start hoarding funds to meet demands
for cash. The central bank hasn’t conducted open-market
operations since November. Last month, the PBOC reportedly
rolled over part of a separate 500 billion yuan lending
facility.

To contact Bloomberg News staff for this story:
Xin Zhou in Beijing at
xzhou68@bloomberg.net

To contact the editors responsible for this story:
Malcolm Scott at
mscott23@bloomberg.net
Nicholas Wadhams

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Venezuela eyes double-digit yield on Citgo debt sale

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By Davide Scigliuzzo

NEW YORK, Jan 23 (IFR) – Venezuela’s US oil-refining unit Citgo will probably have to pay double-digit yields to lure investors into a US$2.5bn financing package aimed at pumping new cash into its state-owned parent PDVSA.

With some US$10bn in debt payments due this year, cash-strapped Venezuela is pledging some of its most valuable assets abroad to raise new cash, as it fends off default worries amid a steep slide in crude oil prices.

A US$1.5bn high-yield bond issue and a US$1bn senior secured five-year term loan will be sold through Citgo Holding Inc and secured by US$750m in midstream assets and a 49% pledge on the equity of Citgo Petroleum Corp, the operating entity.

Citgo has set price talk of 800bp over Libor on the five-year senior secured first-lien Term Loan B, officials from sole lead manager Deutsche Bank said on Thursday during a presentation to investors in New York.

The non-call one loan will have a Libor floor of 1% – meaning that the interest paid on the principal would be at least 9% – and will be issued at an original discount of 96-97 for an all-in yield of about 10%.

As an additional safeguard for investors, the company will be required to keep a debt service reserve account worth six months’ of interest and principal payments, and use 75% of excess cashflow to pay down debt.

BARGAINING POWER

At a 10% yield, the loan – which will rank pari passu with the upcoming bonds – appears to offer a 275bp pick-up over Citgo Petroleum Corp’s 6.25% 2022s notes, which were spotted trading at a yield of around 7.25% on Thursday.

Those notes had been quoted at a much lower 5.5% yield earlier in the week, but tanked by as much as eight points in cash terms after news of the financing package dashed hopes that Venezuela would sell the Citgo unit altogether.

At first glance, the premium appears close to the 200-250bp spread normally seen between debt issued by holding and operating companies in the high-yield market, but given Venezuela’s desperate need for cash, potential buyers might have the upper hand.

An investor who attended the presentation, for example, argued that fair value for the deal should be in the high 10% to 11% range, given the default risks associated with the sovereign and the company’s aggressive policy of borrowing to pay a dividend to PDVSA.

“From whispers in the room, I think this might get done at 10%,” he said. “But some of the bargaining power might be in the hands of the investor community.”

While the company is yet to announce maturity and price talk on the bond portion of the deal, the investor said the yield on offer was expected to be in line with that of the loan.

“I imagine (the bond) will have similar terms and similar price talk area. They may try to do a longer deal, but they could do a five-year as well,” said the investor, who argued that splitting the financing between a bond issue and a loan would not yield significant savings for the company, but simply allow it to tap a broader pool of investors.

RELIEF RALLY

If successful, the deal is expected to provide some support to the short end of Venezuela’s and PDVSA’s bond curves, easing concerns about this year’s maturities.

“Although it is less than optimal to use Citgo to carry the debt of PDVSA, this makes us very comfortable that Venezuela will fully meet its debt payments this year,” said Daniel Freifeld, founder of Washington-based Callaway Capital Management, which owns both Venezuela and PDVSA bonds.

Freifeld argued that as a credit, PDVSA continued to offer a better risk-reward ratio compared with Citgo.

“There is lower default risk in Citgo than in PDVSA, but the difference is not enough to justify taking a yield of 10% when PDVSA’s October 2015s offer an annualised yield of around 24%,” he said.

PDVSA’s 2015s outperformed other Venezuelan bonds this week over optimism that the Citgo deal will help the company meet most of its US$3.5bn debt maturities, plus interest, due this year.

“If you believe there is an interest from the government to maintain PDVSA as a working entity, then this should be particularly beneficial for PDVSA bonds,” said Marco Santamaria, a portfolio manager at AllianceBernstein.

“But all money is fungible, so you never know if they redirect this money to other purposes.”

NO SALE

Responding to questions from investors, Citgo management confirmed that PDVSA had abandoned earlier plans to sell Citgo, in spite of receiving strong interest from bidders.

“PDVSA has confirmed to us that Citgo is not for sale,” a company official said. “It was a very robust process. A large number of bidders expressed interest. But PDVSA made a strategic decision not to sell.”

The US$750m of assets pledged as collateral for the financing package include Citgo’s terminals of East Chicago, Linden, Albany, Toledo and Dayton, as well as the company’s ownership interest in four pipelines.

While only 49% of the operating company could be pledged as collateral without triggering change of control clauses in some of its existing debt, the holding company will be the beneficiary of 100% of future distributions from Citgo Petroleum, including dividends as well as asset or equity sales.

The commitment deadline for the loan portion of the deal has been set for February 4, while details of the new bond issue are expected to be announced in the mid-part of next week.

Citgo Holding’s financing package is expected to be rated Caa1 by Moody’s and B- by S&P.

(Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Sudip Roy)

FinanceInvestment & Company InformationVenezuelaCitgoPDVSA

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US Leveraged Loan Fund Outflows Grow To $738M

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Trying to time the market with a mortgage?

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JPMorgan Chase, Wells Fargo fined $35 million after officers took bribes

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These loan officers took kickbacks

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Wells Fargo, JPMorgan loan officers took cash kickbacks

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NEW YORK (CNNMoney)

Federal and state authorities have ordered Wells Fargo and JPMorgan Chase to pay a combined $35.7 million for taking part in a mortgage kickback scheme.

The Consumer Financial Protection Bureau and the Maryland Attorney General said Thursday that loan officers at both banks took cash payments from a now-defunct title company in exchange for business referrals.

Regulators said more than 100 loan officers at Wells Fargo (WFC) locations in Maryland and Virginia steered thousands of loans to Genuine Title, which went out of business last year, in exchange for cash.

Related: Bank’s ‘repeated failures’ led to 2,000 foreclosures, feds say

Todd Cohen, a former Wells Fargo banker, allegedly had Genuine Title make “substantial cash payments” to his girlfriend at the time in order to avoid detection. The bureau has ordered Cohen and his now-wife, Elaine Cohen, to pay a $30,000 penalty.

Regulators said Wells Fargo failed to halt the scheme even though it was facing a federal lawsuit over the illegal activity.

“We have fully cooperated with the CFPB in this matter and have taken strong corrective action, including terminating team members,” Wells Fargo said in a statement.

The wrongdoing was less extensive at JPMorgan Chase (JPM). The bureau said at least six loan officers at Chase locations in Maryland, Virginia and New York helped steer 200 loans to Genuine Title. The bank has agreed to pay a total of $900,000 in penalties and compensation.

Related: U.S. Bank refunding $48 million to customers

“We are fully committed to ensuring that our mortgage bankers comply with all legal and regulatory requirements,” Chase said in a statement. “These former employees clearly violated our policies, procedures and training.”

The CFPB said a third bank also took kickbacks from Genuine Title. But the bureau said it did not bring an enforcement action against that bank because it “self-identified” and took steps to correct the illegal action.

“These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly,” said CFPB Director Richard Cordray.

First Published: January 22, 2015: 4:37 PM ET

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Wells Fargo, JPMorgan settle mortgage kickbacks probe

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Soccer-Billionaire's cash injection to lead Hamburg out of crisis

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3 Ways to Finance an Engagement Ring

The average engagement ring ran $5,598 in 2013, according to the TheKnot.com. That’s no small chunk of change. While it’s ideal to save enough to pay cash for a ring, there may be times you just can’t — or won’t — wait.

What are the best ways to finance an engagement ring? Here are three, along with the pros and cons of each.

1. Loans From Friends & Family

Grayson Bell was a college student when he decided to propose to his girlfriend (now wife). But with a part-time job as his only source of income, paying cash for a nice ring was out of the question. While discussing the dilemma with his mother, she offered to loan him the money. It turned out to be a smart move. “She had contacts at a prestigious jewelry market in another state,” he recalls. ”She was able to get a ring at 60% off the appraised value. It was a great deal and a custom ring specifically designed for my wife.”

Bell and his mother set up a formal arrangement from the beginning, “We created a contract with payment terms, due dates, and when the loan needed to be paid off. I had to pay her back monthly and at least the minimum payment we agreed to. If I missed a payment or it was late, there was interest applied. It was much like a bank loan.”

Bell is a personal finance blogger now, and shares how he dug out of $50,000 in credit debt on his website. But at the time he was just a student who needed to find a way to finance his engagement ring. “All in all, the experience was a good one,” he says. ”Looking back now, I realize I should have waited to just save up for the ring, but in my college years, I wasn’t thinking about that or my financial future. I paid off my loan on time and thanked my mother for what she did.”

The advantage of one of these loans is that they can carry an interest rate as low as 0%, and can be very flexible. They don’t appear on credit reports, which can be a plus (or minus — if you need the credit reference to build credit).

The downside? If you can’t make payments there’s likely to be a rift between you and the lender that could strain the relationship with someone you love.

2. In-Store Financing

Most major jewelers offer financing plans, some of which feature 0% interest for a limited period of time. For example, Jared offers interest-free financing for 12 months, or 12 months at 0% followed by low-rate financing for six months. Kay Jewelers offers 12 months interest-free. Blue Nile offers no-interest financing for six and 12 months, or equal payments for 24, 36 or 48 months at 9.9% (the time period depends on the amount financed). Zales offers 0% interest for six, 12 or 18 months, again, depending on the amount charged.

All of these offers require opening a new retail credit card. This new account could affect your credit scores, especially if the line of credit they give you is not significantly more than the amount you charge. That’s because credit scoring models compare your available credit to your balances to get your “debt usage ratio.” If your balances total more than 20% to 25% of your available credit on any individual credit card (or on all of them together), your credit scores may suffer. In other words, if they approve you for a $5,000 line of credit and you spend that much on a ring, your account will be maxed out from the beginning — and that can hurt your scores.

The other big “gotcha” to watch out for is that under some of these plans you may lose the interest-free financing and be charged interest from the date of purchase (often at a high interest rate) if you fail to pay the balance in full by the time the promotional period ends.

3. Personal Loans

A personal loan can be an alternative to opening a new credit card. While you won’t get interest-free financing that way, you may qualify for a loan with a low fixed rate lasting for anywhere from 12 to 48 months. The advantage to this type of financing is that you’ll have a fixed monthly payment, and know exactly how much you need to pay each month until the loan is paid off. In other words, there is no risk that you will see your rate skyrocket if you fail to pay off the balance when the promotional rate expires.

As with all types of engagement ring financing, there are a few things to watch out for, though. Your interest rate will depend in large part on your credit scores; the better your credit, the lower your interest rate. If your credit isn’t strong, you may wind up with a higher rate. (Think of interest as the opposite of a discount on the ring. Instead of paying less, you pay more.) You can check your credit scores for free on Credit.com to see where you stand.

Here are a couple of examples of how much interest can cost you over the term of the loan:

$5,000 loan at 10% for 3 years  

Total cost: $5,808.24Payment: $161.34

$5,000 loan at 12% for 5 years

Total cost: $6,673.20Payment: $111.22

(Curious how your debt stacks up? You can see how much it will cost to pay off your credit card debt using the free credit card calculator at Credit.com.)

Borrow Smart

Whichever method you choose to finance an engagement ring, review your credit reports and scores before you apply for the loan. And be sure to read the fine print so you understand the terms of the loan. Paying more than you expected is stressful, and you’ll have enough stress planning — and paying for — your wedding!

More from Credit.com
Do You Need a Wedding Loan?What Happens to Your Credit When You Get Married?Credit Card Options for CouplesFinanceCreditengagement ringcredit reports

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