MF Global Holdings Ltd. took the cult of the Wall Street chiefexecutive officer to a new level with a plan to sell bonds that paya higher rate if Chairman and CEO Jon Corzine quits to take a jobfrom the U.S. president.

The futures broker is selling $300 million in five-yearunsecured notes, said a person familiar with the offering whodeclined to be identified because the terms aren't final. The noteswill pay an extra percentage point of interest if Corzine is namedto a federal post and confirmed by the Senate before July 2013, NewYork-based MF Global said in a regulatory filing.

“That seems crazy,” said William Larkin, a fixed-incomeportfolio manager who oversees $500 million at Cabot MoneyManagement Inc. in Salem, Massachusetts, and has 22 years ofexperience. “I've never heard of something like this.”

Corzine, the 64-year-old former governor of New Jersey, helpedrun Goldman Sachs Group Inc. from 1994 to 1999 and served in theSenate from 2001 to 2006. Since joining MF Global last year, he'staken more risk with the firm's money in a bid to remake the brokerinto a mid-size investment bank and has sought to alter its capitalstructure to reduce borrowing costs. The shares rose 9.5 percent inthe past year under his watch, while the Standard & Poor's 500Financials Index fell 4.9 percent.

A Democrat, Corzine is among the biggest fundraisers forPresident Barack Obama's 2012 re-election campaign. He has been thesubject of speculation about administration jobs such as Treasurysecretary or White House economic adviser, said Christopher Allen,an analyst at Evercore Partners Inc. in New York.

Retention Bonus
Jay Carney, the WhiteHouse press secretary, said he had “no knowledge” that Corzine wasbeing considered for an administration post. He declined to commenton the bond sale.

Corzine's employment contract is written with a view to futuregovernment service. It stipulates that he'll be paid his $1.5million retention bonus on a pro rata basis if he leaves to workfor any “U.S. federal, state or local government” before March 31,2014.

Five senior Wall Street executives at rival firms, who declinedto be identified because they weren't authorized to comment,expressed amazement at the bond offering's unique terms. Hedgefunds sometimes allow investors to withdraw their money if a starmanager or founder, designated a “key man,” leaves the company.

Diana DeSocio, an MF Global spokeswoman, said she couldn'tcomment because the company is in the offering period for thebond.

'Extra Protection'
“I can't say I've everseen a provision similar to this one,” said Alexander Diaz-Matos,an analyst at New York-based Covenant Review LLC, which analyzesbondholder protections. “Apparently Corzine is a big enough deal tothe company that if he leaves, potential investors demanded alittle extra protection.”

Larkin said he was surprised that the interest-rate change onthe bonds applies only if Corzine leaves for a government job andnot in any other circumstance.

“To have it so specific makes it even more unusual,” saidDiaz-Matos.

Proceeds from the sale will be used to repay a bank creditfacility and for general corporate purposes, said the personfamiliar with the terms. Jefferies & Co. is managing the bondsale, according to the filing, which didn't specify the size of theoffering.

Investor Concern
The idea for the Corzinestep-up provision emerged from Jefferies bankers working on thedeal, according to one person with direct knowledge of thediscussions, who asked not to be identified because the talks wereconfidential. The Jefferies bankers indicated they wanted to headoff any investor concern that Corzine might leave, the personsaid.

Moody's Investors Service ranks MF Global Baa2, thesecond-lowest investment grade, while Standard & Poor's ratesit BBB-, one step lower. The interest rate will also rise ifMoody's or S&P cuts the company's debt grade to junk, theregulatory filing shows.

A rate increase of 1 percentage point, or 100 basis points, isthe least that bondholders should seek as protection against aCorzine departure, said Sean Egan, president of Egan-Jones RatingsCo., a credit rating company.

“We believe Corzine is worth more than a 100 basis-pointincrease,” Egan said. “Corzine's departure is a major risk and thebond step-up in rate is addressing the risk.”

The innovation reminded Egan of Michael Milken, who helpedcreate a market for the debt of smaller and riskier companies byissuing high-yield securities in the 1980s.

'Rock Star'
“Milken would be proud of thestructure since it addresses a major concern,” he said.

Larkin, who said he owns bonds in Wall Street firms includingGoldman Sachs, Morgan Stanley and JPMorgan Chase & Co., said hedoubts the idea will catch on at other companies. Corzine is aunique case, he said.

“I'm guessing this is a one-time thing — he does have sort of arock-star component to him because people believe in his ability toturn around the firm,” Larkin said. “The management should never beone person. If it's one person that's critically important, I tendto avoid the company just because I'm trying to establish stableincome and return of principal.”

MF Global was named a primary dealer by the Federal Reserve Bankof New York and has hired more than 80 salespeople and traders thisyear.

Even with the additions, Corzine has cut costs by reducing thefirm's workforce by 5.5 percent and delivered unadjusted profitlast quarter. Prior to that period, the firm was unprofitable on agenerally accepted accounting principles basis in eight of theprevious nine quarters.

Middle of Turnaround
Net revenue peremployee has risen to $110,000 for the three months ended in June,compared with $93,000 a year earlier, the company said last week.At the same time, Corzine brought the ratio of employeecompensation to net revenue down to 54 percent from 63 percent inthe June quarter of 2009.

Net income climbed to $7.67 million, or 5 cents a share, in theperiod ended June 30, compared with $783,000, or 1 cent, a yearago, the company said July 28.

Last week, the firm said it planned to buy back $109.1 millionof 9 percent outstanding convertible notes with the proceeds from asale of $325 million of 3.375 percent securities maturing in August2018.

The interest-rate increase under the key man provision willreverse if MF Global is upgraded to at least A3 by Moody's or anequivalent A- by S&P after a departure by Corzine, according tothe regulatory filing.

It's no surprise that major MF Global investors would be nervousabout the potential impact of a Corzine departure, said NiamhAlexander, a New York-based analyst at KBW Inc. “There aren't thatmany former senators that are running public companies that are inthe middle of a turnaround.”

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