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The Bernie Bond sinks in value

BERNIE ECCLESTONE's hopes of borrowing $2bn from financial institutions, secured by the future earnings of Formula One Holdings, have run into trouble with reports circulating in Europe that the German bank WestLB is willing to buy most of the bonds but will only do so if the borrowing is reduced to $1.4bn.

The highly-respected Financial Times newspaper reported that the chief underwriter in the deal - the US investment bank Morgan Stanley Dean Witter - is planning to hand over the bond issue to WestLB. This report was dismissed as inaccurate by Morgan Stanley which says it will continue in its current role but financial sources in London say that WestLB has agreed to take over the majority of the bonds if the issue is reduced. The deal is understood to include future stock options for when Formula One Holdings is floated and a joint underwriting position with Morgan Stanley. This will mean that WestLB will get millions of dollars in fees from FOH. We understand that if the deal is agreed the bonds will probably never be listed on stock exchanges and will only be available for private issue.

Ecclestone's desire for a quick deal means that his family will receive less than half of the money he had hoped to raise with the flotation of the company, which was originally valued at around $4bn. After the failure of the flotation Ecclestone hired Morgan Stanley Dean Witter to underwrite a $2bn bond, which would be refinanced by the flotation of FOH within five years.

This was also greeted with scepticism in financial circles - largely because of Ecclestone's problems with the Competition Directorate of the European Commission. A prospectus was issued in November but a series of investment banks reportedly turned down the chance to join an underwriting syndicate.

Investors are worried about the EC investigation but are also curious as to why Ecclestone feels the need to move so quickly rather than waiting until the investigation is completed.

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