Gosford recovers funds as CDO unwinds

Gosford Council has been let off the hook, with its $3 million Federation CDO investment being returned in full with interest.

At one point, the CDO was valued at less than five per cent of its face value.

Wingecarribee Council sold its investment in the Federation CDO earlier this year for 15 cents in the dollar.

Gosford was among a number of NSW councils to benefit when the trustee of Lehman Brothers decided to unwind the CDO, or collateralised debt obligation.

Newcastle Council also received $2.5 million it had invested in the Federation CDO.

A media release issued by Newcastle Council stated that the trustee's decision followed "lengthy representations" involving "advisors retained by Council and other bond holders".

The release acknowledged that the return of the investment was unusual: "The unwind of the Federation CDO was subject to circumstances which are not common to the other CDO investments."

As recently as three weeks ago, Newcastle Council had written off its investment in the Federation CDO and its auditors Price Waterhouse Coopers questioned whether investments in other CDOs had any value.

However, in its statement on October 30, Newcastle Council was anticipating "an orderly unwind" of other CDOs arranged by Lehman Brothers.

Gosford Council stated last week that its $3 million had been returned on October 30, together with accrued interest paid at 8.1192 per cent.

A report prepared for its November 4 meeting stated council's main portfolio experienced a 2.49 per cent drop in August and a 12.67 per cent drop in the past year.

The report also stated council's total portfolio stands at more than $39.2 million.

"Council no longer has any direct investment in the US sub-prime mortgage market," Gosford mayor Cr Chris Holstein said.

"In the worldwide financial turmoil currently being experienced, this is very positive news for Council."

Cr Holstein said that all of council's investments have been made in accordance with the Local Government Act 1993 and the Minister's Order on Investments.

"Council is continuing to monitor the position of all other investments in light of the current economic climate," Cr Holstein said.

Press release, 6 Nov 2008 Lisa-Maree Schell, Gosford Council Media release, 30 Oct 2008 Newcastle Council