A couple of questions, Deprived, regarding the LTC-ATF.B1 bonds.
I don't think I've seen an market buy of those bonds, so I'm assuming you've issued them privately as the numbers of bonds listed on BTCT has remained steady. How does this affect the LTF-ATF fund? Just recently you stated that the fund had too much money and you wanted to reduce the funds by issuing a dividend. Will not a private issuing of 125 BTC significantly increase the debt of that fund?
When or if you need to liquidate the LTC-ATF.B1, how do you intend to do that? There isn't nearly enough bids at the market (nor have I seen) to trade openly. Is there a guarantee that these bonds will be liquidated by the normal redeem procedures of the bond? If so, what is this backing? Will the LTC-ATF holders be affected if, in theory, difficulty dropped considerably?
.b
The LTC-ATF.B1 bonds were NOT newly issued ones. They were ones I already personally owned - either bought by me via the market or bought by me personally from people who wanted to sell theirs. Thats why if you look at dividends you'll see that the same 250k shares were paid dividends before AND after I transferred these to the fund.
If you read through the LTC-ATF thread you'll find one example in there of me personally buying the bonds. TAT wanted to cashout 5500 of his bonds (to get out of BTC before the drop in its price). The fund bought back 2k (20 BTC) of them at its rate of 99% and I took the other 3.5k (35 BTC) myself at full face value (as I'd personally already liquidated all the BTC I wanted to before the expected drop). Private purchases like that (which don't effect the fund at all) aren't usually disclosed - that one was as usagi had claimed the 2K drop in outstanding bonds was me selling to myself then selling back after a dividend (which would be a remarkable dumb way for me to steal money given I could just transfer it). TAT confirmed he'd done the deal with me - to close that stupid idea down (though it was provably wrong anyway).
So there was no increase in debt as a result of this fund getting the LTC-ATF.B1.
You also need to understand a bit more about how LTC-ATF works. It's valued and priced in LTC - but trades a lot in BTC. CUrrency exposure is reduced by the existence of the LTC-ATF.B1 bonds. The majority of BTC trading is done with funds raised by the bonds - as that is offset by a BTC-denominated liabilty (the face value of the bonds) it greatly reduces LTC-ATF's exposure to BTC (and also retains most profit for LTC-ATF). The excess capital LTC-ATF has is LTC-denominated. We can't use that for BTC trading - as we'd then expose ourself to exchange-rate risk. So we're often in the position of needing more BTC and less LTC (as we make profit - and that profit ends up being held as ~85% LTC denominated whilst LTC-denominated activity is probably only 20-25% of what we do).
If this fund needs to liquidate the LTC-ATF.B1 then at present there's two ways of doing it:
1. Sell back to LTC-ATF at 99% of face value.
2. Sell back to me at full face value.
LTC-ATF.B1 are backed by ALL the assets of LTC-ATF, which has no other debts.
At present there are 250 BTC worth of LTC-ATF.B1 (at full face value).
LTC-ATF's gross assets are approximately 325 BTC worth of BTC-denominated assets and 350 BTC worth of LTC-denominated assets. So well over double the value of the bonds. And of that ~675 BTC worth of assets over 91% is in actual cash (BTC or LTC). It's rare cash falls below 85% - as we trade not invest so our whole game-plan is about not having cash stuck in actual assets for too long.
At present (and nearly always) LTC-ATF could pay off all the bonds AND buy out every unit of LTC-ATF not owned by me personally without having to liquidate ANYTHING. That's nearly always the case - and is why LTC-ATF can constantly maintain a bid-wall for over 1/3 of its outstanding units at about 98% or so of NAV.
In practice if difficulty fell a lot and we had to liquidate the LTC-ATF.B1 I'd just buy them back myself at face value - same as the fund got them for. Saves a lot of hassle and moving funds around. That may change shortly - to where it would be better for the fund (AND for LTC-ATF) to sell back to LTC-ATF but that's an announcement that I'll make if/when it proves to be the case. In any event LTC-ATF has about 275 BTC cash so could comfortably buy them back without even having to exchange any LTC and then resell at face+1% easily - so redemption is no problem whatsoever.
As I alluded to above, there'll likely be a change shortly in the way LTC-ATF handles bonds/debt. That change will have zero negative impact on this fund - and possibly a positive one.
