Dubai World: The Impact of the Fixed Interest Rate on Secondary Debt Prices

FOR SALE 

 

Great Price.  One Owner Only! 
Carefully Underwritten and Maintained

Asa Fitch over at The National has a report on secondary loan sales of DW debt.  As per his report only US$25 million has been sold so far by an unnamed Asian bank at US$0.55 of par.

Traders are quoted as saying there is a disconnect between the bid and offer prices with sellers looking for modest discounts and buyers thinking more in the range of 30 to 60% discounts.  That's an extremely wide range - which indicates the lack of real demand.  Also it may be reflective of differing discounts for the five-year and eight-year paper.

For a potential buyer there are two key risk issues with a purchase:

1. Repayment Risk - Will DW settle its debt in full?  So there is a premium added to the "risk free" yield to compensate for this risk.
2. Interest Rate Risk -  DW's debt is at a fixed not floating interest rate.  The price of financial instruments with fixed interest rates moves inversely to the current market level of interest rates.   If you think about that it makes perfect sense.  If the market if offering to sell you a new bond with a fixed 5% coupon, why would you pay the same amount for an equivalent credit risk bond with a fixed 2% coupon and the same repayment profile? You'd be willing to buy the 2% bond only if its price were less than par.  Sufficiently less so that you earned 5% on  the bond. The extra bit of yeild coming from capital appreciation.  This price risk exposure is measured by duration and convexity. Duration estimates the price change using a linear approximation of the price change function (equation).  Since the actual function is not linear, a second approximation, convexity, (technically the second derivative) is used to correct the first. Bond sensitivity to interest rates can work both ways.  If market interest rate levels decline, then one's bond is worth more.  That is, reversing the example above, one has the 5% coupon bond in the 2% market coupon environment.  As noted above in the original example, if market interest rates increase, one's bond is worth less.  Since DW's bonds are at below market rates and since market rates are at historic lows, there is little upside potential.  Any buyer will be focused on pricing the downside risk into it's bid.  Compounding the pricing will be the credit risk element.  Just to complete the discussion, floating rate instruments are less much sensitive.  Their duration is generally equal to the length of the repricing period not a function of maturity.  With, for example, a quarterly interest payment reset one can ignore interest rate risk.

These two factors affect the discount.  The bigger the required yield on the instrument the bigger the discount.

Since I haven't seen much discussion of interest rate risk, and since I think it's an important factor affecting the secondary pricing of DW debt, I'm going to focus on it in this post as you may have guessed from my "succinct" discussion of this topic immediately above.  

This is a structural issue.  As the restructuring was crafted, lenders had two options to reflect the economic value of the debt.  

1. Haircut the debt and get a market or near market rate on the debt. 
2. Maintain the fiction that the debt was worth par and take a below market interest rate.

Why did they choose the structure they did?

Some potential explanatory factors:

1. The importance of cashflow to DW.   DW is cash strapped.  A higher interest rate will impact them more now than reduced principal repayments which in traditional restructuring style are going to be backended.  DW's overriding goal is to delay as long as possible the sale of assets, hoping that an economic recovery will allow them to realise more value.  Or that  a refinance will become possible.  Particularly important because a lot of these were purchased at the top of the market with more than modest levels of leverage. 
2. The wise lenders in the steering group who have the remarkable accomplishment of being responsible for 60% of DW's debt (Another great moment in banking!) are probably not going to be selling because the pain would be too great.  It's much easier to absorb say an US$11 million loss on one's US$25 million stake than say a US$2+ billion loss.  So they have no burning incentive to  create a more seller friendly structure.  They're holding at cost not marking to market.  Assuming DW performs under the restructuring, their "haircut" will be the IAS#39 mandated one time present value difference using the new interest rate versus the older higher one.
3. Forgiving principal sets all sorts of dangerous precedents and raises all sorts of dangerous ideas in the minds of borrowers.  
4. Also since interest rates can't go negative, an interest rate reduction has an absolute bound in terms of the haircut.  
5. Additionally, many folks don't understand the concept of present value so an interest rate reduction is not considered as serious as a principal reduction.  You might be surprised (and maybe some of you dismayed) to learn that in many institutions a principal reduction requires a more stringent approval than an interest rate reduction - even when the present value impact is the same.   With the financial press and the average investor the awareness appears to be even lower.

 As usual,  let's begin with the assumptions:

1. A market-demanded discount of 50% of par.   Roughly in the midpoint of the mentioned discount rates.
2. An average 5 year life for the 8 year DW restructured loans.  Since we don't know what the principal repayment schedule is, we have to assume an average life.  I think five years is a good guess. DW's repayments probably mirror the pattern typical for restructurings:  low payments in the first years with the largest in the latter years.  If equal amortization would result in a bit over 4 years average life, then 5 years should be on the safe side. Use of 5 years then sets what I think is a reasonable upper bound to the YTM.  In any case hopefully enough for a directional analysis.  Hint:  I will gladly receive a copy of the  restructuring term sheet if anyone wants to send it to me.  Use the Contact Form to make the initial contact to agree transmission details.
3. A 2% (fixed) coupon.
4. Repayment in full on schedule assumed.

Here are the numerical results.

We can bound the yield to maturity on the 8 year tenor loan between two  points.

Yield to Maturity ("YTM")

1. Assuming a straight bond with a bullet repayment of principal at the end of Year #8, the YTM is roughly 12%.  While interest payment frequency affects the YTM, the difference is minor.  For our directional analysis, I'm therefore going to ignore it.  12% represents the minimum YTM because the restructured loans provide for principal repayments during the life of the loan not just at the end.
2. Using a 5 year average life, the rough YTM is 17%.

Modified Duration

1. For the straight 8 year bond, duration is very roughly 7 times.
2. For the straight 5 year bond, duration is very roughly 4.5 times. Recall that as above we're guesstimating that the average life of the loan as 5 years.
3. What that means is that if  interest rates increase 1% with no change in default risk (credit rating of DW) and no change in credit spreads (the margin demanded for a specific credit grade), then the DW debt will lose roughly 4.5% of its market value. I've chosen to ignore convexity here because it's not likely to be a significant decrease of the duration impact for  the range of likely market interest rate levels.  Since over the next five to eight years, interest rates are more likely to go up than further down, this is a real risk.  A modest 2% hike in interest rates and there is a 9% loss - which will more than outweigh the coupon earnings.
4. Of course, for an investor who intends to hold the bond to maturity, the price loss will be a mark-to-market event and not necessarily a cash flow loss.  Unless of course the investor sells the bond.  However, a fund or a trader will be marking to market and thus performance will be affected.    With a direct impact on such personally important things  for a fund as fees and reputation for the next fund sale. Or for a trader his bonus and perceived trading skills. You can probably easily imagine how these might increase reluctance to increase one's bid, particularly when demand is minuscule in relation to supply.

Other Factors Affecting Demand

1. Secondary Play:  There is no secondary play here.  Often in distress situations, buyers of debt may be motivated by the chance to acquire a company cheaply (buy the debt wipe out the existing shareholders) or other factors.   Emirates Airlines or Emirates NBD are not on offer.   The restructuring is "done and dusted" so there's no negotiating leverage over deal terms.  And one would have to make quite an investment to acquire a blocking vote on the chance there would be a future covenant hiccup that one could take advantage of.    One of our regular commentators, Laocowboy2 mentioned a time-honored sovereign debt settlement mechanism - using the debt as the currency for investing in a new project in the country.  Often with the debt being exchanged at par (not its purchase price) and sometimes at a favorable FX rate which effectively lower the cost of the investment.  Many an savvy investor in Latin American tourism reaped a bonanza return using this framework.  Others who invested in more brick and mortar enterprises less so.  Hint:  An investor's return in such transactions depends more on the creative use of imaginative transfer pricing than one's ability to run a business, though the latter is important.  In any case,  I suspect it is unlikely that Dubai will offer such a program.  The sovereign debt "hole" here is not that deep. Nor the distress that acute at present.
2. Credit Rating Upgrade:  While the "hole" is not that deep, there is still a hole.  Assuming good performance, at some point DW will be upgraded.  However, this is unlikely to happen in the near term.  By the time significant debt is repaid, it may be so close to final maturity that the impact on YTM may be relatively modest. As well, the structural fact that the debt is at a below market fixed rate is going to work against any significant increase in the price.   
3. Credit Spread Compression:  Usually this occurs in times of irrational exuberance.  Judging by the state of the world economy, a near term return to such giddy days is perhaps not a bet a savvy investor would make today.  And again the very low fixed rate is a negative.
4. Prepayment:  It's unlikely that DW is going to prepay the loan in the near term. If it did,  the YTM could dramatically improve. With a rate this low there is an incentive to ride to maturity. Presumably, the desire to "repay" the restructuring and remove a living blot from its escutcheon would be a motive to refinance (when that was possible).  More importantly, it could alleviate cashflow demands, including the requirement to dismantle its expensively acquired empire of  "core" investments.  The unknown is when banker and investor ADD will kick in and permit a refinance.  A good guess is probably more than 3 years out, particularly as the upcoming US$30 billion of new maturities over the next 2 years will remind the apparently congenitally forgetful and heedless of the "hole".

It's a Happy Eid Indeed

Copyright Kristoferb

  Creative Commons Attribution-Share Alike 3.0 Unported License

A special celebration at Suq Al Mal today.

Our coffee and tea shop is now open again during the day.

The location in the picture above a very very happy memory though sadly gone today like the "bust" of the founder.

Dubai World: 99% of Creditors Agree Rescheduling

According to Asa Fitch at The National DW has issued a statement that roughly 99% of creditors have agreed the terms of the restructuring.

An outcome never much in doubt once the steering committee representing 60% of the amount of the debt agreed the terms.  The remaining banks knew that it would take just a few of their number to reach the "magic" special DIFC Court threshold for a potential cramdown.  So why not sign up and get the early bird bonuses?  Also the rescheduling represents the better alternative for recovering the maximum amount of money.

An accomplishment for DW.  But now comes the more difficult bit.  Meeting the terms of repayments.  And in order to do so, probably parting with some of the "Vision's Dreams" at a loss.

عيد مبارك

Dubai Holding: Some Creditors Selling Debt

Asa Fitch over at The National reports that some creditors are looking to exit their exposure to Dubai Holding - DHCOG and DIC - through secondary sales at a hoped for modest discount.

This makes eminent sense in view of the many indirect costs associated with carrying distressed debt.  Costs of additional internal reporting and monitoring for credit purposes as well as for accounting purposes (both book keeping and disclosure).  

On top of all of this, if a creditor feels there is the possibility of an impairment, the decision to close the file  now, recognize the loss and move on may be highly appealing, particularly if there is no long term relationship.  Or if such a relationship is not perceived as being sufficiently profitable in the future.

Clearly, this strategy does not work with banks holding sizable shares.  Unloading a $5 million or US$10 million "bit" is a lot less painful than $50 million or US$100 million.

Dubai: Athens on the Creek?

Photograph by Tbc  Released to Public Domain

Martin Dokoupil at Reuters has a rather negative report on Dubai's financial condition quoting a Bank of America Merrill Lynch report that 

1. Dubai state owned companies are "sitting" on US$100 billion of debt of which US$30 billion comes due through 2012
2. Dubai's debt is 170% of GDP compared the article notes to Greece's 103%.

That last statistic sounds quite alarming.  But before you plunk down that deposit for an off plan villa at Palm Athena, recall that much of the US$100 billion was debt incurred by corporations not the sovereign itself.  In many cases entities with real businesses.  Emirates Airlines.  Emirates NBD.  Dubai Ports.   In several cases businesses that are incorporated outside of the Emirate.  Or whose main theaters of business activity are outside of the Emirate.

That doesn't mean that everything is just fine.  But rather as always one needs to look behind the headline or headline ratio to the details.

Kabul Bank, Mohammed Karzai, Sherkhan Farnood and Palm Jumeirah

Photograph Ivanlo  Released to the Public Domain 

How often do you hear about companies that advertise services that they really don't offer?  Where managements talk the talk but don't walk the walk?

Well, that's not the case at Kabul Bank where management takes seriously the slogan "The Easiest Way to Earn Millions" as we learn from Bradley Hope over at The National.

And what could be easier than real estate investments in Dubai, particularly in the prestigious Palm Jumeirah development.

One chap made a quick AED3 million, though he can't remember what he did with it.

And what can you say about a Chairman who's so solicitous of his bank's investments that he registers them in his and his wife's name?  No doubt in order to keep a close personal eye on them?  Sadly now, the former Chairman due to some onerous new banking regulations in Afghanistan. 

16 or so villas on Palm J and two plots of land in Business Bay reportedly worth some US$150 million.

As per KB's 31 December 2008 financials (the latest posted on its website), that amount being twice the Bank's shareholders' equity and 21% of total assets (assuming of course that the properties are reflected in the balance sheet). 

CitiGroup and Its Magical US$50 Billion in Deferred Tax Assets

While many in the Developed West are liable to ascribe magical powers to those from the East, the Hindu Fakir, a guru at an Ashram, a bank in Bahrain, there is magic aplenty - particularly of the accounting sort- all over the world.

Today we look at one of the USA's major banks with US$50 billion worth of  DTAs (roughly one-third its capital).  Under accounting standards, Citi has to earn some US$99 billion in taxable income over the next 20 years to fully utilize the DTAs.

Like me I'm sure you're thinking surely there must be an "Islamic" equivalent.  Perhaps a Deferred Zakat Asset.  I'll be watching my favorite financial institutions in Bahrain and Kuwait to see if this shows up in their financials.

In response to a comment from Chapter 11, I'd note that of Citi's US$50 billion in tax credits, approximately US$31.5 billion are disallowed from computation of regulatory capital.  See Note #4 on page 36 of its 2Q10 10-Q.

Dubai Debt Maturities Through 2012

 Eiger Nordwand

Copyright Kurt Ritschard 

Creative Commons Attribution-Share Alike 2.0 Generic License

 

Reuters has posted a list of debt maturities (bonds and loans) for Dubai through 2012 by issuer.

Euromoney - A Forest of Paper

One of our regular commentators noted that Euromoney mails his firm multiple copies of its brochures, supplying the above photograph.  

He commented that he's planning to acquire several more PO Boxes and then go into the paper pulping business.

As befits his country though,  I trust he'll make sure that at least 60% of assets are in "investments".

New CEO at Unicorn Investment Bank Bahrain (Delayed News)

I'm catching up on some old news.  

In case you missed it on 2 August, Unicorn appointed Mr. Ikbal Daredia as Interim CEO of the Bank with immediate effect replacing the former MD and CEO, Mr. Majid Al Refai.   Mr. Al Refai remains a member of the Board of Directors.

Mr. Daredia is the Global Head of the Bank’s Capital Markets, Institutional Banking and Treasury units. 

While no reason was given for the abrupt change, rumor (and note that word) is that the Board had differences over "strategy" with Mr. Al Refai - similar to those he had with the Arcapita Board earlier.  Mr. Al Refai is known in part for his keen interest in developing Islamic banking business in Asia.  The Board reportedly wanted to concentrate on Saudi Arabia.  As with Arcapita, he was one of the drivers of the foundation of Unicorn.

Those who read Unicorn's 1H10 financials will also note a loss of US$160 million for the first six months of the year due to provisions of US$97 million and fair value negative adjustments of US$51 million.   This resulted in an approximate 40% decrease in shareholders' equity to US$253 million.  In 2009 the Bank had a modest net income of US$2.2 million.

Dubai World: Offering “الطيور المبكرة” an Extra 20 BP on Interest Rate

According to AlKhaleej newspaper (Dubai), informed sources at Dubai World tell it that DW is offering   “الطيور المبكرة” ("early birds") an extra 20 basis points on interest if they accept the Company's rescheduling plan this Thursday 9 September.  This is in addition to other incentives offered early acceptors - which presumably includes the signing "bonuses" mentioned earlier.

The 9th is the first day for creditor responses but is not the last - though the newspaper's source didn't provide details except to say the final date is in the coming weeks.  Earlier DW had given 1 October as the "final" date to determine the fate of the plan - which would put the last date for acceptance by bankers at least 5 or so days earlier.  That latter bit is my estimate.

The article also repeats the Company's earlier comments about how the longer tenors will enable it to obtain more from asset sales along with the remark (threat) that in the case the banks fail to agree and resort to the courts they will likely receive nothing.  Finally, the agreement of the steering committee representing 60% of DW's exposure is noted.  Already the earliest of the early birds.

It's likely that the Company will achieve the necessary level of approval to secure an effective cram down of creditors using the special DIFC court.  

And what appears to be the long running "soap opera" of agreeing a rescheduling will come to an end, though there will be at least 8 more seasons of implementation.  Not quite a 54 years' run, but still respectable particularly in today's ADD world.

Dubai Holding Commercial Operations Group - Delays Payment Again Until 30 November

As per an announcement on Nasdaq Dubai, DHCOG is delaying payment on its US$555 million revolving credit facility until 30 November 2010.

In July it announced a two month delay in order to finalize legal documentation.   Perhaps, the drafting is being done by hand?

You'll recall that last January, DHCOG excoriated S&P for downgrading it, claiming in effect that the rating agency didn't know what it was doing.  This may indicate who was right in that debate.

You can use the tags "Dubai Holding" and "DHCOG" to access earlier posts.

Gulf Bank to De-Emphasize Investments and Focus on Core Banking Business

Issa Abdul Salaam at Al Qabas quotes informed sources that Gulf Bank is exiting several funds and reducing its share in others during the rest of the year.

GB reportedly withdrew from one fund it had invested in the "past months" with a view to realizing profits in 3Q and 4Q this year and that it intends to exit from several foreign funds.

This represents a change in strategy from that approved by the previous board.  The new board's strategy calls for the bank to focus on its core (banking) business.

Three comments:

1. Sticking to one's core competence is a sensible strategy.
2. Many a change in strategy is motivated more by the need for cash than  long range planning.  The number of lines of business that suddenly become "non core"  are in direct proportion to the cashflow deficit.  Gulf Bank certainly has some serious challenges in its loan portfolio.
3. When picking the "core" business to focus on, it's good to pick one that one has a future.  Whenever I read PR from some firm announcing that it  has made a strategic decision to focus on its core business, I wonder why it wasn't in the first place.  I also recall two business school cases.  In the first,  Pan American Airlines, the company divested itself of Intercontinental Hotels to focus on its airline franchise.  By contrast, in the second, Greyhound/Dial Corp, the dogs were (largely) sold.  One positive thing in this case, the core commercial banking business is a protected one in Kuwait.  And there's probably more of a long range future in commercial banking in Kuwait, if one can get credit underwriting right.

Global Investment House Hiring - Opportunity of a Lifetime

From one of our readers.

Hello there...

Love the blog, and thought you would find the following email rather amusing, someone I know received an email from Global Investment House, asking them if they'd be interested in joining? I've heard from others that they're madly hiring too, bet creditors are happy with that from a cashflow perspective...

Note, this person has ZERO financial experience, and had not shared their details with any recruiters for over 2 years. It is a blatant cold call!

The email is copied below (names removed)


Dear XXXX,

Good day and greetings.

We had come across your contact in our database, and here at Global Investment House we are looking to hire Kuwaiti professionals. If you are interested to have new opportunity please send me your update profile so we can take it further.


Looking forward to hear from you.



Best Regards,

XXXXXXX
Senior Officer - Recruitment
Human Resources & General Administration

E-mail:
Tel:
Fax:
P. O. Box:
Website:XXXX
(965) 22951
(965) 22951
28807 Safat, 13149 Kuwait
www.globalinv.net

This is what we in the developed West would call more evidence of the "War for Talent".

Damas Shareholders Meeting 30 September: Ernst and Young to Be Replaced by Deloitte Touche

Damas announced that it would hold its AGM/EGM on 30 September.

Among the agenda points are:

1. a change in auditors from Ernst & Young to Deloitte and Touche
2. formal election of the Board who were appointed in the wake of the resignation of the old Board as per the DFSA order.

Abyaar Real Estate to Sign Debt Agreement After Eid

Al Watan reports that Abyaar is expected to sign a debt settlement agreement with a major firm after the Eid Holiday. 

The article notes that the company is focused on meeting its obligations as well as completing its real estate projects.  Noting that despite the difficulties in 2009, the Company was able to settle 20% of its liabilities.  While Al Watan doesn't mention it, I'd note that the paydown of the liabilities occurred in close proximity to the Company's successful share issue of some KD52 or so million in September 2009.  That of course was no mean feat given the state of markets.  And Abyaar also increased its capital in 2008 if I'm not mistaken.

The article also notes that Abyaar has just about completed a 40 storey tower in Dubai.  Also that the prudent provisions it has taken against its real estate portfolio will enhance earnings going forward, i.e., the carrying base of assets has been lowered so profit will be higher.  This is  of course just the temporal shifting of profits (or losses) from one accounting period to another and doesn't represent an overall gain in profit for the Company.

ARE started off as a JV between Aayan Leasing and Investment and the AlRashdan Group.   After listing, they each hold about 17% or so of the Company.  There aren't any other disclosed major shareholders.

ARE is listed on the KSE (Symbol 432) and trades at KD26 fils per share a substantial discount from its KD100 fils par value.

Noor Investment to Reschedule KD187 Million

Al Watan reports that Noor Investment Company is ready to sign a KD187 million restructuring with KFH, the lead bank.  

The rescheduling:

1. Converts short term to medium term debt
2. Carries an interest rate of 3.5% p.a. down from 5.5% - a savings of roughly KD4 million.  (I make it more like KD3.50 million the first year assuming that payments the first year are modest).
3. Will be repaid from cash profits and not from asset sales
4. Will commence with the first repayment in early 2011

As per Noor's 30 March 2010 financials (the latest posted on their or the KSE website), total bank debt was some KD184.5 million - with interest at 5.5%, the amount would be KD187 at 30 June.  Note that total bank debt appears in two places:  KD181 million shown in Note 11 and KD3.5 in Note 7.   All of the bank debt was due within one year.

Noor is owned 50.8% by National Industries Group.

Previous posts can be accessed using the tag "Noor Investment Company".

Public Prosecutor Stays Gulf Bank Case Against Derivatives Client

Citing parties close to the case, Al Qabas reports (or at least I think so) that the Public Prosecutor has stayed Gulf Bank's case against its client responsible for the derivatives debacle in 2008 (when GB lost some KD359.5 mm leading to the surgical removal of its board and elements of senior management along with the KIA taking a significant stake to top up the needed capital restoration).

I say I think so because I'm not quite sure that my translation of " النيابة العامة حفظت القضية المرفوعة من قبل بنك الخليج "  is correct.  Sadly, AA didn't graduate from KU's Faculty of Law.

Anyone out there who can confirm or correct my translation, please post.

Threat to Capitalism Warning Notice: Expansion of Shareholder Rights

If you weren't scared by my earlier post, you w'll be by this one!

They say that courage is like a potato chip.  Try one and you're likely to be back for more.

After reading my earlier warning on the appearance of yet another manifest danger to the free market system, one of our readers has called my attention to an even greater danger.  And one frankly I had been avoiding mentioning.  But fortified with yesterday's "first chip" of courage, here I am today confronting another manifest imagined danger.

How much fear can one human bear?  I suppose with courage more than one initially thought.  If you're feeling brave, read on.

I know that many of you out there will be saying what could be a greater danger than more disclosure of CEO pay packages?  Socialists on motorcycles?  Disclosure of senior officers' expense reports?  You had how many "massages" in a single night at the Pen in Manila?  Just how many scotches do you have to drink to run up a $750 bar tab in five hours?  By the way what were you doing in a bar for five hours on a business trip?

No this time the danger is an expansion of shareholder rights.  And again we have the FT to thank for making us all aware of the stealth assaults on our way of life, though I would note  more in sadness  than malice that they did also give a forum to those who support the measure.   Fringe individuals and groups like two former SEC Chairmen, Calpers, self-appointed corporate governance experts.  So we may have to mark the FT down as a waverer in the fight to preserve our way of life. 

The proposed SEC rule on "proxy access" would allow shareholders to nominate up to a quarter of a company's board members. It would allow shareholders to nominate directors if they own 1 per cent to 5 per cent of stock, depending on the company's size, and amend a federal measure that allows management to exclude shareholder proposals that nominate directors.

Sounds simple.  And even good.  Who could argue with an expansion of democracy?  Of shareholders' rights?   

The rule under discussion is "probably the most flawed and unworkable proposal" the SEC has issued on proxy access, the US Chamber of Commerce, the business lobby group, wrote in its letter. Tom Quaadman, its executive director for capital markets, said yesterday that the group was keeping all of its options open, including a lawsuit against the SEC.

Wachtell, Lipton, a big Wall Street law firm, said the proposal would have "negative consequences" for US companies and competitiveness.

When a distinguished firm like Wachtell Lipton or the US Chamber of Commerce weigh in, you know you should listen seriously.  No doubt they're remembering just how well the boards of Citigroup, Lehman, Bear Stearns, Enron, and others - selected, I would remind you, without shareholder interference -  enhanced "competitiveness" to know that the system works just fine as it is.